The nuts and bolts of less car insurance
There are various ways that younger drivers can steer clear of higher insurance premiums. Here are some handy tips.
With curfews and work-from-home policies ensuring that you drive less, you might find it easier to hand the car keys to your student squatter for them to drive themselves around. But, before you do, best to check the fine print on your car insurance policy.
Arrive Alive, the road safety advocacy group, says that under-age and teenage drivers between the ages of 16 and 19 are four times more likely to have accidents. And young drivers are 20 times more likely to cause accidents because they’re drunk, speeding, or distracted by passengers than older, more experienced drivers.
These statistics mean that insurers are likely to hike up insurance premiums for younger drivers. Marius Steyn, personal lines underwriting manager at Santam, says a combination of licence duration and age apply as factors when determining how you are rated on an insurance basis. Susan Steward of Budget Insurance says driving risk does reduce with age: statistically, older drivers have fewer accidents than young or new drivers. “Budget Insurance charges premiums according to a sliding scale, where an 18-year-old driver will pay the highest premium and the premium loading reduces over the years. However, age is just one of the factors that determine risk,” she says.
Ernest North, co-founder of Naked Insurance, echoes this sentiment, saying the calculation of insurance premiums is mostly driven by analysis of historical claims data. North says, specifically, past claims data is categorised into risk factors such as:
● Age: driving history (how long you have had your licence);
● Type of car;
● Areas you drive in (theft risk, quality of roads, riskiness of other drivers);
● Your claims history; and
● Your credit score (which serves as a proxy for predicting other behaviours).
“By comparing past claims [the number and the value of claims] to the number of risks in each group [the potential number of claims], we can deduce the likelihood of a customer in that segment making a claim. For each individual customer, we would look at a cluster of variables [as outlined above] to model the risk that they might claim and price their premiums,” he says.
North supplied the following example to illustrate his point:
“Consider, as an example, John. He is 24, has had his licence for four years, and drives a 1.2 Polo. Compare him to Ben, also 24, who only got his licence last month, and drives a 3.0 GTI. Ben would be priced as a higher risk than John, based on their driving experience and on the cars they drive. How their premiums change over time, as they get older, will depend on factors such as where they live, how many claims they file, the cars they drive, and their credit score.
“Now, let’s imagine John has a 28-yearold brother, Don, who is exactly the same as him in all other respects besides age. He would most likely be charged less than his brother for covering the same car.
“And what about 28-year-old Len, the brother of a 24-year-old Ben, same in all respects besides age? He might be charged 15% less than a 24-year-old Ben, but not because of his age since their driving experience is the same. Perhaps Len lives in a different area with different traffic density and theft risk, since our data indicates that there is not much difference in the risk profile of a 24-year-old man and a 28-year-old man with the same driving experience.”
While age is not the only factor taken into account, all the insurers agree that, as you get older and gain more driving experience, your risk rating does improve and your insurance premium is reduced accordingly. Christelle Colman, managing director at Elite Risk Acceptances and spokesperson for Old Mutual Insure, says the insurer has a rich source of data obtained through claims and policy information to determine driver age-related risks. “This data unequivocally confirms that younger drivers are more prone to accidents, which is the major contributor to motor premiums,” she says.
Having said that, there are specific instances in which your insurer will not pay out a claim:
● If your child, who only has a learner’s licence, drives the car unaccompanied by a licensed driver and crashes the car. If he or she is accompanied by a licensed driver, the insurer will settle the claim but will most likely charge you a higher excess payment. Excess is the cash amount you pay upfront when a claim is paid out and this is your risk portion in the transaction.
● If your child was driving but you lie to the insurer that you were the driver. Your claim will be rejected. Your insurer can also give you notice that your entire policy will be cancelled.
North says any dishonesty or deliberate fraudulent activity entitles the insurer to cancel your cover (with immediate effect or backdated), to pursue legal action against you and reclaim the cost of the investigation, open a criminal case against you and submit your name to the industry fraud database. “All these actions will make it near impossible for you to buy insurance going forward,” he warns.
Lower your insurance premiums
There are ways for younger drivers to decrease their insurance premiums by improving their risk profile. North says a good starting point is to improve your credit score.
“You can do this by having a cellphone contract in your name rather than your parents’ name. Making payments timeously and not skipping payments will help build a positive credit profile, which can push down your premiums,” he says.
The type of car you drive also plays a role. North says although the colour of the car plays a minimal role (and in the case of Naked is not used at all), the value and power significantly affect your premium.
“Driving a smaller, sensible car is not only a healthy financial decision for your budget but will cost you less when it comes to insurance,” he notes. Steward says actuaries consider the power to mass ratio of the vehicle, which interacts with the age factor to determine the technical premium.
“So, the higher the performance ability of the vehicle, the higher the premium will be,” she says.
You could increase your excess to decrease your monthly premium. But, if you do this, you should ideally have the excess amount available in emergency savings so that it is readily available if you have a claim. This limits the scenario where you have to take a loan or default on other financial obligations to pay your insurance excess.
Colman says having a tracking device installed decreases your risk and insurers will often discount your premium on confirmation of a tracking device. She advises that you ensure your car is serviced according to the manufacturer’s prescriptions and that you keep up the maintenance. This includes simple steps such as checking that your tyres are correctly inflated, and your radiator water is topped up.
Wilma van der Walt, executive of customer experience and operations at PPS shortterm insurance, notes that overinflated tyres result in the tyre wearing in the centre, giving you a harsher ride and reducing the tread life of your tyre.
An underinflated tyre, on the other hand, also reduces tread life significantly, with tyres wearing more on the outside shoulder. Underinflated tyres mean that the tyres flex more, causing internal heat leading to tyre damage from overheating or, worse, a blowout.
While age is not the only factor taken into account, all the insurers agree that as you get older and gain more driving experience, your risk rating does improve