A premium is an amount that an insured pays an insurer for cover under a contract for insurance.

The premium reflects the amount an insurer considers appropriate having regard to the risks associated with granting cover to an insured having regard to an insured’s circumstances.

How are motor vehicle insurance premiums calculated?

When deciding a premium insurers have regard to the following circumstances:

  • Where is your vehicle kept? If the vehicle is in an area with a higher crime rate, the premiuim may be higher because of the increased likelihood that the insurer will have to pay out an insurance claim.
  • What is the age and claims history of the vehicles driver(s)? The more experienced the driver, and the fewer claims in their history, the lower the premium is likely to be.
  • Has the driver previously been convicted of a criminal offence, whether it be for speeding, drink driving or other traffic related offences? If so, the premium is likely to be higher.
  • Has the driver been involved in motor vehicle accidents?

As some circumstances may not have changed when an insurance policy become due for renewal, a question that often arises is ‘Why do my premiums increase?’.

There are several reasons why a premium may increase and include, but are not limited to, the following considerations:

  • Insurers will often increase premiums due to inflation or changes in government taxes.
  • Premiums may change dependant on the amount of claims have been lodged under an insured’s policy for insurance or as a result of that particular sectors amount of claims lodged within the past 12 months.
  • Insurers may ordinarily increase premiums if the amount of claims lodged against an insurer are abnormally high or higher than previous years.


It is important to consider how premiums are calculated and the likelihood of them increasing. Many insurers will offer cheaper premiums if you as the insured are able to take the necessary steps to reduce your risk. It is also of utmost importance to ensure that you do not unreasonably lodge claims as this will, of course, result in an increase in your premiums.

It is however important to understand that there are other environmental and financial factors that are uncontrollable and may result in an increase in your premiums.