PERSONAL FINANCE: Why vehicle insurance premiums differ from one person to the next

Factors like age, claims history and even where a vehicle is parked can affect the premium.

Two South Africans can drive the same car, park in the same suburb and still pay very different monthly insurance premiums.

It feels unfair, especially when your friend, neighbour or colleague casually mentions they are paying a few hundred rand less for cover on the same make and model. But insurers are not only pricing the vehicle. They are pricing the driver, the risk and the likelihood that something expensive will go wrong.

As Ernest North, cofounder of Naked Insurance, puts it: “People often assume car insurance is priced mainly on the car. But in reality, insurers are trying to estimate two things: how likely you are to claim, and how expensive that claim is likely to be. That is why your insurance quote and your neighbour’s can differ even if you drive the exact same car.”

In other words, your premium is not just about the metal on four wheels. It is also about you, where you drive, where you park, your claims history and the choices you make when structuring your policy.

Insurers look at a basket of factors when deciding what to charge you. It can include your age, how long you have had a licence, your claims history, how long you have been insured, where the car is kept overnight and how the vehicle is used.

A driver who has had a licence for more than 10 years, drives modest distances, has not claimed recently and parks behind secure gates is likely to be viewed differently to someone who has only been driving for a few years, has had a recent accident and parks in the street.

“Insurers don’t price a Toyota Corolla in isolation,” North says. “They price a Toyota Corolla driven by you in your context.”

For example, a car used mainly for short personal trips may carry a different risk to one used daily in heavy traffic or for business purposes. A car parked in a locked garage may attract a different premium to one parked in the street overnight.

Insurers may also use your credit record as a risk signal – scrutinising available data to help predict risk and price accordingly. Different insurers weigh these factors differently, which is one reason quotes can vary widely.

One of the easiest ways to reduce your monthly premium is to choose a higher excess. The excess is the amount you agree to pay when you claim. If your excess is R7,500 and your claim is accepted, you pay the first R7,500 and the insurer pays the balance, subject to the policy terms.

A higher excess generally means a lower monthly premium. A lower excess generally means a higher p