The Premium Breakdown Explained

Declines And Silly Premiums

Image of the premium breakdown I have got my premium breakdown what does it all mean?

Most insurance companies operate schemes, schemes are targeted at a sector the market such as young drivers, safe drivers, classic cars or drivers who drive during quieter parts of the day. Most insurers will have multiple schemes in the market at the same time.

Generally insurers operate schemes so that they can calculate the likely costs of claims and budget accordingly and offer the lowest price to the type of customer that scheme is aimed at.

These schemes are why you sometimes see on the price comparison sites an insurance company offering more than one premium where one is competitive and the others are not.

As these schemes are all about averages different ways of calculating the cost of claims can result in very different premiums.

You could offer everyone the same premium regardless of the risk they represent, if you did this the safer drivers would be subsidising the more risky drivers.

You could offer a low starting premium in the calculation and then load it very heavily for the risky driver.

You could offer a high starting premium in the calculation and then load it very little for the risky driver.

All of these options and other will give very different premium for an individual whilst covering the cost of the claims.

The Individual Premium Breakdown Rating Factors
Silly premiums come about when the insurer doesn't want your business.
A 13k premium

As a scheme is targeted at a particular type of driver how should an insurer respond when a driver is a not suitable.

There are two options, one is to quote a premium that is uncompetitive often to the point of being apparently silly.

The other option to decline, to not offer a premium at all.

The exact point where to draw the line is often unclear, for example a safe driver scheme would probably decline someone with an IN10 (driving without insurance) conviction last year as this suggests a high risk.

But they may accept the risk and load the premium a lot if the conviction was 5 years ago and add a smaller load if the conviction was a long time ago.

So someone with a No Insurance (IN10) and a Drink Driving (DR10) conviction may find that the loading for either of these convictions makes the premium high and for both of them apparently daft, nobody would pay that. Which is the point as far as that scheme is concerned.

Base Premium

Step              Factor        Premium   Type
Base Premium     2200.00       £2200.00   Fixed Amount
The is how much the premium would be if the risk that you represent matched the ideal risk for that scheme.

This value will change massively between schemes;

A safe driver scheme where no/few accidents are expected from drivers who have years of experience and no claims will have a low base premium.

A more unpredictable scheme such as a young driver scheme where the driver has no individual driving experience so can only be judged on the stats for everyone of his age will have a much higher base premium.

Driving District

Step               Factor        Premium   Type
Driving District     0.98       £2156.00   Multiplier
Where you drive a car will affect the premium simply because someone driving in a city centre is more likely to have a accident.

Generally the further you are from a town or city centre the lower the premium, sometimes crossing a postcode boundary will result in just a small change but sometimes those few feet mean that you have moved from a urban area into a rural one and premiums could drop by 30%.

This is just one of those things that have to be accepted when buying insurance on a fully automated basis.

In many of the example quoters living in certain areas has multiplier of less than one giving a discount.

There is an oddity in that it is usually assumed that you drive near to your house, so if you live in Lands End and drive in a big city a lot this factor will often be wrong. It is rare but possible for an insurer to ask for both residential and driving areas.

Theft District

Step               Factor        Premium   Type
Theft District       1.00       £2156.00   Multiplier
This is pretty much as you might expected, where you live affects the likelihood of your car being stolen or damaged.

As theft and damage within a postcode area is a statistic that is available to all insurers it is also likely to result in a similar view of that area by each scheme.

However each scheme will have different requirements for an area based on vehicle value, whether it is garaged or left on the road, what sort of alarms and trackers are fitted and is the area just too high a risk for that scheme.

The type of cover may affect this loading as TPFT and TPO may not have malicious damage cover and you may also be able to elect for a higher malicious damage excess increasing your costs if the car is damaged but reduce your premium.

Vehicle Group

Step              Factor        Premium   Type
Vehicle Group       0.86       £1854.16   Multiplier
You may see vehicles given ABI (Association Of British Insurers) vehicle groups, but quite often these are now how a scheme sees them.

An Mazda MX-5 the two seater sports car "looks" a lot different to different schemes.

It might be an unacceptable vehicle to a Young Driver scheme because it is and exciting car to drive too quickly on the roads, and unacceptable to a High Performance Car scheme because it is too slow.

A similar car might be the Fiat X-19, a classic two seater and anyone driving it is saying something about themselves rather than the vehicle.

So the premium loading for the vehicle depends more on the schemes aims than it does on the vehicle itself.

You may also find that you are uninsurable with your vehicle because you have added your son or daughter and the scheme is fine with you driving it but not them.

Vehicle Age

Step               Factor        Premium   Type
Vehicle Age          1.10       £2039.58   Multiplier
The age of you car might affect the premium because of the cost of repairs or replacement.

There is also the risk that someone driving a worn out old car, rather than a classic old car will not be as careful as could be desired. "It's only an old wreck, who cares if I crash it" so load the premium.

The other side to that coin is a scheme that is trying to keep the premium down will see an old car with lower repair costs as a positive.

In many of the example quoters living in certain areas has multiplier of less than one giving a discount.

Vehicle Security

Step               Factor        Premium   Type
Vehicle Security     1.00       £2200.00   Multiplier
This tends not to be much of a rating factor, instead it is okay to cover or decline.

Alarms of any sort, factory fitted or after market alarms meeting the Thatcham standards don't make that much difference to the risk.

Mainly because the people stealing the cars know to bypass them or steal the car using the keys.

Trackers on the other hand can bring a discount if fitted to low risk vehicles, the sort nicked for a laugh and dumped somewhere and eventually dismantled bit by bit.

More valuable vehicles may require a tracker.

Class Of Use

Step              Factor        Premium   Type
Class Of Use        1.05       £2141.55   Multiplier
If you choose Social, Domestic and Pleasure or Social, Domestic and Pleasure and Commuting the premiums will be pretty much the same.

This is slightly unintuitive as I would have thought that driving in the rush hour would be a higher risk than it appears to be with loadings around the 0%-10%.

Unless you are retired though not having the commuting cover is setting yourself up for a trip to work without insurance because there is a bus/train strike. I wouldn't be surprised if some insurers believe that policy holders with SDP are actually commuting anyway so don't really calculate these uses separately.

Personal business use is generally fair at around 10%-20% but and if you need carriage of goods or are a salesman then expect some heavy loadings and a lot of declines.

Newest Driver Experience

Step                       Factor        Premium   Type
Newest Driver Experience     1.10       £2355.71   Multiplier

Newest Driver Experience     1.10       £2355.71   Multiplier
Driver (2) Experience        0.57       £1342.71   Multiplier

Youngest Driver (25)         1.96       £1130.66   Multiplier
Most Inexperienced Driver    2.30       £2600.52   Multiplier
Driver (2) Experience        1.00       £2600.52   Multiplier
Up until this step there is limited scope for flexibility in calculation the premium, a scheme can use different numbers but not much else.

How you calculate the experience of the driver can vary a lot. For example do you calculate a loading each driver, just the youngest driver, just the least experienced driver, or a combination?

All of these ideas make sense depending who you want for your scheme.

A 17 year old driver is always going to carry a high premium, but that will be different if that driver is the main driver or and additional driver. So do you price yourself out of the market because Mr & Mrs Solicitor want to put their son on the policy?

In this step are bigger multipliers we are starting to see bigger multipliers and the effects that they have on the premium.

Incidentally the second rating, the one with the 0.57 is from the Young Driver quoter with mother added as driver. This is a common trick to lower premiums but if it is not true then the policy could be void.

Driver Occupation

Step                           Factor        Premium  
Driver - Proposer occupation     1.00       £2200.00  
How occupations are rated is a bit like how drivers are rated, you can load for each driver and each occupation or you can pick the highest risk or the main driver occupation or a combination.

The ABI list for occupations used to have around 1,600 entries, many of these are pretty poorly defined, especially when dealing with on line sites.

Are you a Civil Servant or an Accounts Assistant? There are plenty of similar descriptions of jobs and as online site allow you to get quotes without a broker in the way it can be tempting to find the one that gives the cheapest premium.

Although it's probably no great surprise that occupations such as publican generally incur higher premiums it is much more complexity that that and I have seen occupations such as Vicar and Violin Maker quite heavily loaded.

Employer's Business

Step              Factor        Premium   Type
Class Of Use        1.05       £2141.55   Multiplier
Some schemes will also quote on employers business, but this is quite scheme dependent as its value may not be seen as significant.

If you are a barman does it really matter if you work in a pub or a restaurant? If you are an accounts clerk does it matter if you work for a brewery, Pizza Delivery firm or a software house?

Often higher rated employer's businesses are ones where there may be high use of the vehicle as part of the business such as a pub collecting from the cash and carry.

Again there are a lot of choices, the ABI list of occupations was around 1,000 but unlike occupations there appears to be less scope for picking the cheapest one.

For example an employer in Financial Services would probably be a lower risk than one in Debt Collection, but that quite probably pushing the limits to far and you will end up with a void policy.


Step              Factor        Premium   Type
Mileage            0.938       £1150.07   Multiplier
Fairly simple this one, the more miles that you do the greater the load.

The only real exception is that very low mileages also pick up some loading as the driver might be driving so little they are out of practice.

There are low mileage schemes aimed at classic cars, MG Bs that come out on sunny days only where this logic clearly doesn't apply.

Pet Ownership

Step               Factor        Premium   Type
Pet ownership....    1.00       £1150.07   Multiplier
This is sort of light hearted but also intended to make point.

It might be the case that dog owners are lower risk than non dog owners and the insurer might want to offer a 5% discount.

There is a problem to doing this, how do you ask the question?

An insurance broker probably has a computer system supplied by one of a handfull of companies and they won't want to add your question.

A price comparison site might be more flexible but this information would need to be stored in the whole chain from the web site to the insurer's systems so that it can be processed at renewal.

In other words there is a lot of work that someone might implement only via a special channel.

Finally there is an issue with electronic communication, back in the late 1980s a standard called Brokernet was established to handle electronic messaging between brokers and insurers. It was based on a very inflexible standard that doesn't allow for just adding a question and answer

Voluntary Excess

Step              Factor        Premium   Type
Voluntary Excess  115.00       £2204.15   Fixed Amount
Most policies will have excesses, the amount of a claim that the policy holder has to pay.

If you opt for a larger excess then the premium can be reduced up to a point.

Voluntary excesses are only really meaningful with accident claims, with personal injury claims where the costs can run into hundreds of thousands of pounds the odd £500 here or there is irrelevant.

High excesses can also be a warning sign, the proposer is desperate for the cheapest premium possible, so maybe the car isn't MOTed, needs major work done on the brakes or tyres or the driver is unemployed and forgot to "mention" that.

In this example the percentage reduction in the premium has been capped, as the % discount would have been too great.

No Claims Bonus/Discount

Step              Factor        Premium   Type
NCD                 1.00       £2204.15   Multiplier
For most people NCD (No Claims Discount) or NCB (No Cliams Bonus) which is the same thing is by far and away the factor that reduces the premium the most and is also often poorly understood.

NCD doesn't have any defined standards, 2 years NCD might mean 30% in one scheme and 50% in another. Nor is it legal right an insurer doesn't have to offer it and if you change insurers the amount that the new insurer offers as a discount doesn't have to match that your current insurer offers.

In practice NCD years are freely transferable between insurers, if you have 6 years with another insurer you will get the same discount with a new insurer as a person who had 6 years claim free with that insurer gets.

There are a couple of exceptions though, introductory NCD when an insurer gives you a year or years that you haven't earnt. This could be because you haven't driven for a few years but are still a good risk or you have been driving on a company car policy or as a named driver.

No Claims Bonus/Discount Continued

Some schemes offer rapid promotion, for example a 10 month policy might accumulate NCD years every 10 months but change insurers and you may only get the real number of years.

All schemes cap the percentage discount offered after a certain number of years so 5 years NCD and 10 years NCD might very well be the same.

It also doesn't follow that a scheme with lower NCD percentages will necessarily result in a higher premium. A scheme designed for safe drivers may start of with a low base premium and offer small NCD discounts, it is an assumption for that scheme that you will not being having accidents.

Another scheme may offer 90% NCD and have such a high base premium that even after the 90% off it is still more expensive.
If you make a claim the rules for reducing your NCD can be complicated and are not easily available but there is no standard.

New Business Discount

Step               Factor        Premium   Type
New Business ....    1.00       £2204.15   Multiplier
Big question,
Should we price our policy fairly, cover the costs of operating and claims and make a fair profit
Should we buy business by offering a policy at either a loss or at no profit?

Acting on this question has resulted in a market place where renewal premiums are often greater than the new business premium for the same person. The renewal comes through, the policy holder goes onto one of the price comparison sites and sees the same policy cheaper and asks why.

The answer is simply that the insurer hopes to recover in years 2, 3 etc the losses he made in year 1. The problem is now grown so large and created so much ill will that the practice is reducing but will take a while to mostly disappear.

There can be two types of new business discount, that lead by the underwriters who say that offering 10% means that we will still break even and that lead by the marketing department which is regards losses as part of the longer term game.

Commissions And IPT

Nett Premium = £2093.94
Broker Commission Rate = 12.50%
Broker Commission Amount = £261.74
Gross Premium = £2355.68
Insurance Premium Tax = £235.57
Total Premium = £2591.25
Once the steps have been completed there is the commission for the broker who sold the policy to be added and IPT, Insurance Premium Tax.
Ouch, they have added the best part of 25% to the cost of the insurance.

IPT is just a tax, the government does nothing for it, they just say it's the law add 10% to the premium and give it to us.

In this example the percentage reduction in the premium has been capped, as the % discount would have been too great.

Broker commissions are negotiable roughly within the 5%-20% range, but as shown here their commission does have quite and impact.

Claims And Convictions

Image of a premium breakdown with claims and convictions
The handling of claims and convictions is very specific to each scheme, do you target people with them, do accept that a few are okay or do you look for perfection.

Premiums will be affected by both the conviction code, such as SP10 (speeding) but by the number of points, the fine and if a disqualification resulted. All of these give an automated system an idea of how bad the offence was.

Whilst some offences are accepted almost as a fact of life, a simple speeding conviction will cause very few schemes to not want you. A drink, drug or non insurance offence is the opposite and you will be left searching for niche schemes targeted at this type of offence.

Claims too have some types that are almost ignored such as windscreen claims, they are often deemed to be a fact of life and not your fault. Accidents and the costs associated with them are loaded in relation to their costs, with Malicious Damage sitting the middle in the it depends category.

It is important not to "forget" to mention claims and convictions, not only are there numerous databases that can help and insurer detect these omissions, doing so could see you on a fraud database making getting insurance very difficult.

When you go into the broker or use an online site, these databases probably won't be checked, the quote process needs to be as fast and as cheap as possible. What happens after you take out the policy would be insurer dependent.

Just Make Me Legal

Claims And Convictions
Step                                                                      Factor   Premium  Type
Claim - Theft-01/Feb/2019                                                   1.20  £1549.11  Multiplier
Claim - Theft-03/Apr/2016                                                   1.00  £1549.11  Multiplier
Claim - Theft-03/Apr/2017                                                   1.00  £1549.11  Multiplier
Claim - Theft-04/May/2017                                                   1.00  £1549.11  Multiplier
Claim - MaliciousDamage-05/Jun/2018                                         1.15  £1781.48  Multiplier
Conviction - SP10 - 12/Dec/2018                                             1.10  £1959.62  Multiplier
Conviction - BA10 - 12/Dec/2018                                             4.00  £7838.49  Multiplier
Conviction - SP10 - 13/Jan/2019                                             1.10  £8622.34  Multiplier
Conviction Supplemental Loading For Disqualification SP10 - 13/Jan/201      1.10  £9484.58  Multiplier
Conviction - AC10 - 10/Nov/2016                                             1.20 £11381.49  Multiplier
Conviction Supplemental Loading For Disqualification AC10 - 10/Nov/201      1.10 £12519.64  Multiplier
Conviction - SP10 - 09/Oct/2018                                             1.10 £13771.60  Multiplier
The above example comes from the Just Make Me Legal quoter which will quote for just about any risk.

The claims are not problematic, it loads the premium for the most recent theft claim but not for the older theft claims and the Malicious Damage claim is reasonable as well.

The BA10 claim (driving while banned) results in a massive 4x multiplier, and as well as loadings for the 2nd SP10 and the AC10 there is a supplemental loading as the conviction resulted in a disqualification.

Although the total premium is ridiculous at over £13,000 the reasoning behind it is quite clear. Sure the quoter could have said well the premium is up to £10k might as well stop as nobody is going to pay this much anyway.

Had the driver had just one years NCD though the quote would have reduced by thousands once that had been applied.

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