The Cost Of Car Insurance

zimmerseo

I have a question for those of you in the know about car insurance and how the premiums are set.

If I get a quote from a car insurance company, say for €500. This quotation is calculated on my risk factors. Age, address, occupation etc.

If I divide this by 365 days of the year and hours in the day, it works out at 0.05 cent per hour.

Just for this exercise, lets assume there is zero risk attached to my premium when the car is stationary. ie When my car is parked in my driveway at night, in my office car park etc. and the quoted premium is based on the REAL factor, which is when I'm driving it on public roads.

Now, if I drive an average of 10,000 miles which is the generally accepted average mileage of an Irish road user and I drive at an average speed of say, 50kmh over those 10,000 miles, it works out at approximately 200 hours of driving per year.

Now, take that 200 hours of REAL risk (actual driving time) and multiply it by the original cost per hour overall 0.05 cent...... my premium should really be €10.00 per annum.

So my question is, why is my premium €500 and not €10 +plus profit margin for the insurer? Or is it simply a case of the insurer making €490 profit (minus €10 risk) from my premium?

Any insight into this would be appreciated.

Thanks

weisses

What about theft ?

whatawaster

zimmerseo wrote: »

I have a question for those of you in the know about car insurance and how the premiums are set.

If I get a quote from a car insurance company, say for €500. This quotation is calculated on my risk factors. Age, address, occupation etc.

If I divide this by 365 days of the year and hours in the day, it works out at 0.05 cent per hour.

Just for this exercise, lets assume there is zero risk attached to my premium when the car is stationary. ie When my car is parked in my driveway at night, in my office car park etc. and the quoted premium is based on the REAL factor, which is when I'm driving it on public roads.

Now, if I drive an average of 10,000 miles which is the generally accepted average mileage of an Irish road user and I drive at an average speed of say, 50kmh over those 10,000 miles, it works out at approximately 200 hours of driving per year.

Now, take that 200 hours of REAL risk (actual driving time) and multiply it by the original cost per hour overall 0.05 cent...... my premium should really be €10.00 per annum.

So my question is, why is my premium €500 and not €10 +plus profit margin for the insurer? Or is it simply a case of the insurer making €490 profit (minus €10 risk) from my premium?

Any insight into this would be appreciated.

Thanks

You are paying to cover your own risk but also a portion of everyone else's risk. €500 is obviously the amount that they have calculated that achieves this while giving them an acceptable profit margin.

I don't think it's anything to do with hourly rates, it is the risk that you or others will claim off them over the year and how much those claims might cost them.

If you insist on thinking about it hourly:

- there is very low risk when you are not driving (theft, basically)
- there is a much higher risk when you are driving (more than €0.05 cent per hour you have calculated)

The €0.05 cent per hour is an average "hourly" risk.

blindside88

The insurers take into account the time the car will be driven and the time it will be stationary. That's why if you put occupation as "unemployed" the premium will increase as you are likely to use the car during the day. Also if you work in a licences premises you are more likely to drive late at night which can impact the premium

zimmerseo

weisses wrote: »

What about theft ?

As I said, while the car is stationary, for this exercise there is ZERO risk attached to the premium. Theft makes up a very small part of insurance costs overall.

bucketybuck

whatawaster wrote: »

I don't think it's anything to do with hourly rates, it is the risk that you or others will claim off them over the year and how much those claims might cost them.

Exactly, the OP has started with a false assumption.

Premiums aren't based on hourly rates, so why bother discussing things as if they were?

zimmerseo

blindside88 wrote: »

The insurers take into account the time the car will be driven and the time it will be stationary. That's why if you put occupation as "unemployed" the premium will increase as you are likely to use the car during the day. Also if you work in a licences premises you are more likely to drive late at night which can impact the premium

Generally speaking, quotes given are based on average mileage. Occupation is a risk factor but the example I've given you is based on an average joe (me!). 5 years no claims, Job, etc..

zimmerseo

bucketybuck wrote: »

Exactly, the OP has started with a false assumption.

Premiums aren't based on hourly rates, so why bother discussing things as if they were?

Guys, I think you are missing the point. I didn't say my premium was based on an hourly rate, but the REAL risk factor is when I'm driving, which is an average of 200 hours per year.

whatawaster

zimmerseo wrote: »

Guys, I think you are missing the point. I didn't say my premium was based on an hourly rate, but the REAL risk factor is when I'm driving, which is an average of 200 hours per year.

Then you can assume your premium is €2.50 per hour driving.

But it's pretty meaningless, because even if you didn't drive at all your premium wouldn't be zero. There is still a risk that you a) might drive in an emergency, or b) car will be stolen.

ytpe2r5bxkn0c1

zimmerseo wrote: »

Guys, I think you are missing the point. I didn't say my premium was based on an hourly rate, but the REAL risk factor is when I'm driving, which is an average of 200 hours per year.

And you are missing the point too. Average mileage, your age, age of car, value of car, location, etc are all factors. The number of hours you drive is only a small part of the calculation. Insurance costs are basically spread across all motorists with certain factors adding to the base rate.

blindside88

zimmerseo wrote: »

Generally speaking, quotes given are based on average mileage. Occupation is a risk factor but the example I've given you is based on an average joe (me!). 5 years no claims, Job, etc..

Mileage plays a very small part in the premium. Insurers do not ask for proof of your mileage and will generally charge a similar premium for people that say they do 0-5000km per year as they do for people who say they do 15000-20000 km per year. Your initial assumption is flawed

To Elland Back

Don't forget you get a FREE day from your insurers every leap year

Robbie12

Well he did ask if people had any more insight.

Its interesting - id love to see the spreadsheets used so you could see what things affect it the most.

To Elland Back

Robbie12 wrote: »

Well he did ask if people had any more insight.

Its interesting - id love to see the spreadsheets used so you could see what things affect it the most.

Not exactly light reading

https://www.centralbank.ie/publications/Pages/statistics-research.aspx