Factors Affecting Car Insurance Premium
Among the retail consumer products offered by general insurance companies, car insurance is the most complicated in terms of the number of variables that have an impact on the final premium. Online car insurance aggregators are working on providing an easy to use interface where the user can compare the car insurance premium rates as charged by different car insurance companies for the car of his choice.
The car Insurance Premium has three components- Own Damage, which in most cases is more than 90% of the premium, Third Party and Personal Accident cover.
Now, let us have a look at the various factors that determine the premium charged for car insurance.
Under the Motor Insurance Act, the country was divided into two zones- the top eight metros and rest of the country. The premium for a car registered in the top eight metros is a little higher than it is for the rest of the country as the perceived risk is higher in these top eight cities- Delhi, Mumbai, Kolkata, Chennai, Hyderabad, Pune, Bangalore and Ahmedabad. Even today, most general insurance companies follow the same classification while some companies have refined this further. For example, certain companies charge higher premiums if the car is registered in Punjab or in Delhi, where the incidence of theft and accidents is higher.
Cars with higher engine displacement (CC) have a higher component for the Third Party part of the premium. The classification here is in terms of less than 1000 cc (Rs 670), 1000 to 1500 cc (Rs 800) and above 1500 cc (Rs 2500).
Age of the vehicle
Insurers allow for a depreciation of the vehicle with age. As the age of the vehicle increases, the depreciated value reduces and the Own Damage component of the premium keeps reducing.
No claim bonus
Insurers want to reward policyholders who have had no claims or fewer claims. If there have been no claims over the preceding years, insurers offer up to 50 percent rebate on the Own Damage component of the premium.
The car insurance companies closely track their claims ratios and try to establish patterns whereby one vehicle model might have had higher claims percentage than another make or model. They factor this into the pricing and load up the premium for vehicles which are more prone to accidents.
Profession and age
Some companies offer a discount if the policy holder is a government servant or member of certain association. For example, members of Automobile Association of Eastern India (AAEI) get a five percent discount on their car insurance premium. Similarly, certain companies have varying premiums depending on the age of the driver. In developed markets of the West, even the car colour has a bearing on the premium.