Car Insurance Basics | Fundamental Factors Affecting Insurance Premiums
Car insurance is an essential expense in the car maintenance budget. Whether it's basic coverage or comprehensive insurance, car owners always hope for the lowest possible premium. Hong Kong has a large number of insurance companies with varying car insurance plans. This article analyzes the main factors affecting premiums, making it easier to choose car insurance when buying, changing, or renewing your policy next time
Case Sharing
When purchasing insurance, insurance companies conduct risk assessments based on various factors to determine premiums. Below is a simple example for comparison. Jack, a 90s-born individual, successfully obtained his driver's license two years ago and is preparing to buy his first car. James, Jack's boss, is 49 years old, has many years of driving experience and a good driving record, and decided to buy a new car this year. They considered purchasing the same car model, but the car insurance quotes they received were vastly different!
| Toyota Camry | Mercedes-Benz GLC | ||
|---|---|---|---|
| Market capitalization | $200,000 | $400,000 | |
| Jack: 25 years old, first time buying a car (full insurance/third insurance), 2 years of driving experience | |||
| premium | $10,500 / $3,805 | $15,000 / $3,805 | |
| James: 49 years old, 15 years of driving experience (full coverage/third-time insurance), NCD 60% | |||
| premium | $3,570 / $1,450 | $5,500 / $1,450 | |
As can be seen, both the insured vehicle and the policyholder's background will affect the insured value. The following is a detailed explanation of the major factors
Regarding car insurance
Vehicle age/mileage
For the same vehicle model, the younger the car, the newer it is, and the easier it is to get a cheaper insurance premium. Regarding mileage, if a new car has driven more kilometers than a typical car in a short period, it means the owner uses the car frequently and has a higher chance of being involved in an accident, thus resulting in a higher insurance premium. Conversely, if the owner only drives occasionally, the premium will be lower. However, in recent years, insurance companies have less considered mileage as a premium factor, so mileage may not have a significant impact
Model
Insurance companies determine the insured value of different car models by analyzing past customer claims data and automotive industry safety reports. Although each insurance company has different standards and focuses, sports cars with better performance and higher horsepower generally have higher premiums than ordinary entry-level family cars. Before buying a car, it's advisable to do some research or consult an insurance broker to understand whether the safety rating of your desired car model is good in the insurance industry
Car price
Since basic insurance ("three insurances") does not cover damage to the insured's vehicle, even if you drive a supercar worth over a million, the car's price will not significantly affect the cost of the "three insurances." However, if you plan to purchase "comprehensive insurance," the vehicle's market value becomes the decisive factor. This is because if a higher-priced car is involved in an accident and requires repairs, policyholders generally hope to receive compensation equivalent to the vehicle's market value when the total loss (reimbursement) is claimed. Therefore, insurance companies set higher premiums to ensure that policyholders receive appropriate protection in the event of an accident
Regarding insured car owners
Age/Driving Experience
A car owner's age is often linked to their driving experience (license age), so newly licensed drivers generally pay higher insurance premiums than experienced drivers. Furthermore, drivers under 25 or with less than two years of driving experience may have to pay a higher "excess" when making a claim
profession
Car owners working in the construction industry generally receive higher car insurance premiums than those in office jobs, all other things being equal. This is because construction workers frequently drive to and from construction sites, increasing their risk of accidents. Of course, occupation doesn't usually have as much impact on premiums as vehicle value and performance; the final difference depends on the specific criteria used by each insurance company
No-claim discount (NCD/NCB)
NCD (No Claim Discount) means that if the policyholder does not make any claims throughout the year, they will receive a 20% discount in the second year, increasing by 10% each year, accumulating to a maximum of 60% in the fifth year, roughly equivalent to a 40% discount on the total premium. In the example of comprehensive quotes, Jack's car insurance quotes were consistently higher than his boss James's. Besides the age difference, the more important reason is James's excellent driving record and consistent car insurance purchases over several years, accumulating 60% NCD, thus resulting in a lower quote when he changed cars. For a detailed explanation of car insurance no claim discounts, please visit https://www.awm.com.hk/blog/2020/11/whatsncdncb-car-insurance .
Online insurance pricing is simple and convenient
One last tip, if you want to save on premiums, it’s best to first understand your actual needs, and then shop around to choose the most suitable car insurance plan (including coverage and deductibles, etc.), so that when an accident occurs, losses will be minimized. In fact, finding the best car insurance plan is not as troublesome as you think. Using the AMW quotation service, you only need to enter simple information on the webpage, and you can get an immediate premium quotation for most car models. Customer service staff who are familiar with the insurance industry can give you detailed answers via WhatsApp. Online quotation is free https://www.awm.com.hk/