Why does your post-code affect the cost of car insurance?
Insurers take many different factors into account when they calculate a car insurance quote, and one of them is where you live. That means your postcode could affect the price of your policy.
Why postcodes are a risk factor
Insurers need to assess the likelihood of you making a claim so they can set a premium. That’s why you’re asked so many questions when you apply for insurance, and why insurers analyse all sorts of statistics to weigh up every set of circumstances.
Postcodes are a risk factor because areas around the UK are different in the number, frequency, and extent of the claims that are made in each one. Postcode data can tell insurers about:
- Population density – denser populations in big towns and cities tend to have more claims.
- Traffic density – more vehicles on the road in an area usually means there will be more accidents and claims.
- Crime rates – car thefts and vandalism tend to be greater in urban and city areas
- Personal injury claims – some areas have higher claim rates for personal injury following an accident.
- High-risk road systems – local junctions, roundabouts and cycle lanes can increase the risk of a claim.
- The frequency of fraudulent claims and uninsured drivers in an area.
As you can see, some of these risk factors show that, generally speaking, urban locations have more insurance claims than rural areas. This helps to explain why car insurance premiums in bigger towns and cities are sometimes more expensive.
Even so, insurance premiums can vary significantly even within neighbouring postcodes, so one street might have a different risk factor to another very close by.
Proximity of accidents to where you live
There’s another reason why where you live has an impact on your premium. In 2019, Compare The Market shared that 90% of all car insurance claims occur within 5 miles of the driver’s home.
A possible explanation for this is that when a driver is in an area they know very well, they may be less vigilant; their attention may wander. Insurers are aware of this, so they look closely at the claims history in that area.
The 6 levels of postcode rating
Insurers group postcodes into one of six levels of risk, from A to F, with A being the lowest risk and F being the highest.
Cheapest and most expensive UK postcode ratings for car insurance
According to quote data from Compare the Market between October 2020 and January 2021, the UK regions with the cheapest average premiums were:
The most expensive regions for the same period were:
|4||Yorkshire & The Humber||£782.28|
Other risk factors for car insurance costs
If you live in a higher risk postcode, don’t feel too disheartened. As we mentioned earlier, there are lots of other risk factors involved, and in the right circumstance, you might still save money compared to someone in a lower-risk area.
Your age, your job, how you use your car (i.e. for commuting or just for social and domestic use), how many miles you drive each year, and the make and model of your car are all important for getting cheaper car insurance, too. If you have a clean driving history and a no claims bonus, that will also help to reduce the average price.
Be truthful about your address
If you’ve used one of the various postcode risk-checkers that are available online, don’t be tempted to give your insurer a false address for a lower-rated postcode. They will confirm your correct address when you apply for insurance, but they might refuse a driver who gives false information, which makes it harder to get insurance in future.
How often do insurers update postcode risk assessments?
Insurers understand that the profile of a neighbourhood can change over time. Because of this, they refresh their databases regularly to ensure that premiums are an up-to-date reflection of a postcode’s actual risk. This keeps their quotes competitive in areas that are lower risk, and helps them budget for greater outlay in higher risk areas with more (or more expensive) claims.
How to cut the cost of insurance
You might not live in a cheap postcode for car insurance, but you don’t have to move house to reduce the cost! Some sensible tips include:
- If possible, park off the road or in a garage overnight
- Lower your average annual mileage
- Increase your voluntary excess
- Buy a car in a lower insurance group
- Make sure your job title is accurate
- Don’t insure your car for a higher class of use if you don’t need to
Taken on its own, knowing if your postcode is a low or high risk isn’t very helpful. It won’t give you much idea how much your car insurance will cost.