How are car insurance quotes calculated?

Last Modified 16th of February 2021

In short, it can be slightly complicated. A lot of people ask “How are car insurance quotes calculated?” But one of the biggest questions is how your premiums are worked out. Here’s our quick guide…


Insurance companies keep and share statistics on claims and all of their customers (anonymously of course) and use that data to find correlations which suggest how risk you are as a driver. They might find, for instance, that people in a certain age range are more likely to crash or that people with certain types of jobs are safer. The number of places you can find correlations is surprising and, as a result, your premium will often vary based on where you live (crime rates), how old you are, how many cars you have, how often you drive and so on.

Expected value

The next step is to calculate your risk – insurance companies use very complex algorithms to work out risk and different companies will assess you in their own way. They will try to decide how likely you are to make a claim (either by having an accident or being a victim of crime) and also how much that claim might be for. In very simple terms, they might estimate you have a 50% chance of having a small bump, a 10% chance of a low speed collision and a 1% of causing a more major accident, plus a 10% of your car being stolen. They have to average out these events so that they can say “on average this customer is likely to claim £300 per year”. Of course some years you won’t claim at all, but some years you will claim much more, so it all works out.

Adding it all up

Once the insurance companies have estimated how much you will cost them, they add on some amount to cover a portion of their overheads and any statistical variance plus ideally a little bit of profit. Simple really!