The principles behind
Car Insurance.

If you're a driver, the odds that you'll never have a car accident are remote - no matter how good a driver you are. Against this background, car insurance is simply a way of smoothing out the financial consequences of an accident.

The insurance companies make an assessment of the risks involved in insuring you and they then calculate the premium required to accept that risk. The key factors they use are the value of the car, its performance characteristics and its repair costs. They then take into account your sex, age and driving experience. Other factors such as your post-code and the security protection your car also have an influence. All this information is assessed against a huge database of historical data. From this the insurer can assess the mathematical probability of you making a claim and indeed the size of the claim. They can then provide you with a quotation. Whilst this represents a great deal of work, and indeed it is, their computers can complete this assessment within seconds.

Whilst applying for car insurance you'll be asked for a lot of information which you must answer with total honesty - otherwise your insurance company would be entitled to refuse any claim.

A central principle within insurance is something called an “insurable interest”. To have an “insurable interest” you have to be able to prove that in the event of an accident etc, you would suffer financially. This concept of “insurable interest” is to avoid certain types of fraudulent claim – for example, insuring someone else's car, causing it to crash and then making a claim.

If you make a claim you also need to be able to prove what is called ‘proximate cause'. This means that the damage happened as a result of an of event covered by your car insurance policy. For example, not all policies insure damage which happens as a result of riot or war.)

Assuming that you have fully comprehensive cover, if your car is damaged by another vehicle, your insurance company pays for your repairs even if the accident were not your fault. Then if the other driver was to blame your insurance company will reclaim the repair costs from the other driver's insurer. This administration process is called 'subrogation'. Therefore any claim paid by your insurance company will affect your no-claims bonus unless the accident was 100% the other drivers fault and your insurance company receives full repayment of its costs from the other party's insurers. That's why you should take out optional legal cover with your car insurance – then if you can take court action if you think that an accident was their fault and their insurer will not pay up. Remember, if your insurance company cannot recover the full cost of the claim, the accident will still count as a claim and consequently damage your no-claims discount.

The last technical aspect to be aware of is you have a duty to take reasonable care of the car when it's not being used. This means that when you leave your car you must lock it and keep the keys safe. If you leave your keys on the office desk and the keys and car are stolen, you'll probably have a hard job convincing your insurance company to pay the claim. So take care!