How Car Insurance Premiums Are Calculated

    October 15, 2018

    A key factor as to why most people choose to take car insurance from one provider or the other is cost. So it is important to know how car insurance premiums are calculated.

    Everyone is keen to know how much of their monthly income they will need for premium payments. Several parameters dictate how car insurance firms calculate premiums.

    How Car Insurance Premiums Are Calculated – General Rules

    Firstly, there are general factors that affect the insurance industry, and they are largely beyond your control. They include:

    High claims: If there is a significant number of road accidents, premiums will tend to be higher. Here in South Africa, that is sadly the case. The situation is due to a general lack of concern for high driving standards and the number of unlicensed drivers on the road.

    How Car Insurance Premiums Are Calculated

    Since more accidents lead to more claims, insurers will raise premiums so as to be able to cope with the payouts. The number of car thefts has also been on the rise recently, which has increased the number of claims.

    When insurance companies pay out lots of money in claims, they replenish their coffers by hiking premiums. It’s simple maths.

    Uninsured drivers: South Africa has a large number of uninsured vehicles cruising its streets. This fact, added to the fact that many of the cars are unroadworthy, vastly increases the risk of accidents. There is no compensation for damage to property or injuries to victims. With the other party having no insurance, the insured party will have to take care of everyone involved. Also, as the level of risk goes up so does the size of premiums.

    The Prevailing Markets

    Prevailing market conditions: Insurance being a business, the money you submit in monthly premiums doesn’t just sit idly in a bank account somewhere waiting for an accident to happen so that it’s paid out. Insurance firms usually invest the money in the securities market and other kinds of investments. If the markets are doing poorly and the returns are low, most insurers will hike premiums to make up for the shortfall in their projected profits.

    Inflation: When you are in an accident, or someone steals your car, you will want your insurer to cater for repairs. They must also foot medical bills for injuries or replace your vehicle. If the cost of car parts or medical care goes up, insurers will raise premiums to meet the higher claims bill. Pricier cars will bring about the same effect.

    How Car Insurance Premiums Are Calculated – Personal Factors

    Personal factors: On top of the above conditions, your status is a significant factor that determines your premiums. Your age will play a huge role in your payments. A general rule is the older you are, the higher the risk. Your insurance history will also give the insurance firm an idea as to how often they can expect claims from you.


    Please complete and click to submit the form on this page to get a complimentary car insurance quote


    All info was correct at time of publishing