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How does your postcode affect your car insurance premium?

Which factors do insurers take into account?

Insurance is one of the necessary burdens of car ownership. When budgeting for a vehicle purchase, you must calculate what it will cost to insure it as required by law. Car insurance premiums in the UK vary on account of various factors. The relationship between a person's age and driving skills with the premium rate is evident. The basics such as arrest/conviction records, past claims and type of car apply. What some policyholders may fail to realise is that the postcode is another aspect that insurers look at when structuring premiums. Some parts of the UK may cost you less to insure a vehicle than others. Why is that though?

Why the Postcode Matters

The location of a car when it is not on the road says a lot about its lifespan. It all comes down to risk. In some neighbourhoods, a vehicle owner can park his or her car outside the home and not have to worry about theft or damage. In others, even a garage may not provide enough protection. Insurers factor in the risks that certain postcodes present when evaluating clients. For parts of a city where car owners don't have private garages, the risks of vehicles being broken into are high. If a car owner has to park on the street or T-junction, an insurer considers that as well.

Motor insurers use crime and claim statistics to assess the risk potential of a particular postcode. They then categorise postcodes in groups between A, which is low risk and F, which is high risk. For example, Birmingham 61-80 is in group A whilst 23-36 is in E. Most insurers require all motorcycles in these higher risk neighbourhoods that fall in class D, E and F to be garaged in a locked and secure building overnight. This requirement also applies to cars in some parts.

Insurers also consider the risk of accidents and vehicle damage when looking at postcodes. High traffic areas have a higher number of collisions than sparsely populated regions. Drivers in cities, for instance, tend to make more claims than those using their vehicles in less built-up areas. Therefore, when shopping for insurance policies, you should look at the claims percentage of the area where you live.

Which Postcodes are Cheaper to Insure?

Car insurance rates have skyrocketed over the last few years, but residents of some areas have had to endure higher premiums than others. is one site that customers can use to calculate the cost of premiums for different regions. The figures from the site show that a 4-year old Ford Focus owner, who puts 15,000 miles annually and has no claims discounts, will pay about £1,265 in Bradford BD1 whilst the same policyholder would pay £395 in Aberdeen. London is the UK's priciest city to insure a car with premiums averaging £1,330 whilst Truro, Cornwall is the cheapest at £350.

Urban areas tend to come with higher premiums than rural regions due to the greater risk of collision that they pose. Uninsured driving is another threat that insurance companies factor in when designing policies for urban dwellers. Urban parts of the country have complex road systems, cycle lanes and junctions, which can contribute to higher accident rates. In an interview, AA Insurance's Ian Crowder explained that the north-west, north-east and Midlands had problems with whiplash claims. However, this trend is set to halt as the government revised regulations on whiplash claims in 2018. The reforms saw the costs of premiums go down for the first time since 2014. The average premium for drivers in 2018 between January and March was recorded at £768 by comparison site, a figure that is 2% lower than the average for the same period in 2017.

The Postcode Effect

It is logical that an insurance company would consider some areas high risk, which makes policyholders high risk as well. Insurance companies thrive on risk assessment, and they have data on all of the UK. It is not uncommon to find two parallel streets that are rated differently in terms of risks factor. A driver with the same driving history can go from paying £313 to £220 just by moving from an S6 postcode to an S35.

There is a flaw in the assessment conducted by insurance companies. Some of the information they use does not account for regeneration or other developments that may have taken place in a particular region. A section of town that was high in crime may have changed in the course of a year after a regeneration project was completed. The problem is that a vehicle owner may live in one of the safest suburbs in the nation, but if the rest of the town is considered high risks, then it causes a ripple effect. What happens is that a motorist may keep a stellar driving history, maintain his or her car meticulously and still find that insurance premiums are out of reach.

Motor insurance is a must-have for every driver, but it may not be affordable to all. The area where a motorist lives can spike the costs of insurance premiums significantly. When considering car ownership, you must evaluate every aspect of insuring it, particularly your postcode.

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