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What affects my traffic insurance price and what to expect in the future?

The price of Traffic insurance or Motor Third Party Liability Insurance (MTPL) is a complex set of many different variables and circumstances. In addition, as insurance companies have varying tolerance levels for different risk categories, each company will present a slightly different insurance offer for the same car and owner. 

In this article, we take a thorough look at what influences the traffic insurance policy price, shedding light on some seemingly obscure calculations by insurance companies. In addition, we offer our expert look into what will influence insurance prices in the future and what innovations we can expect to see in the insurance industry.

 

Factors that influence traffic insurance price

Vehicle type and purpose

Traffic insurance price varies depending on the type of vehicle you want to insure. For example, the MTPL policy for a cargo van will cost more than for a regular car, while insurance for trailers, tractors, and motorbikes will cost less because these are vehicles that participate in traffic infrequently or seasonally.

Insurance price also differs depending on the purpose your car serves. Vehicles that are used intensively, like taxis and delivery vans, will have a higher insurance price since their frequent use is associated with a higher accident risk.

 

Your place of residence

Traffic insurance will generally cost more for big-city dwellers because of high traffic intensity and the subsequent higher accident risk. 

As the car’s owner, if you have declared your residency in a big city, insurers assume that that’s where you’ll use it and face higher accident risks than another driver who lives in a smaller town in the countryside.

 

Your experience and driving history

Your history of traffic accidents is probably the most game-changing factor in calculating the insurance policy price. If you’ve been driving responsibly in the previous MTPL insurance policy period, the price of your policy should not grow. However, if you have caused a traffic accident or even several, then the traffic insurance price may be higher in the next insurance period.

A clean record improves your “reputation” in the eyes of insurers while any accidents you cause reflect badly on your Bonus Malus class – a system that insurance price calculations are based upon. 

 

What is Bonus Malus class?

Bonus Malus (BM) is a system designed by insurers to calculate the risk class and insurance costs of vehicle users more accurately. This calculation takes into account how long you’ve been insuring your car and how many traffic accidents (if any) you’ve had for which the insurer has paid compensation. 

If you haven’t caused any road traffic accidents during the insurance period, your BM class will grow. On the other hand, if you’ve caused an accident, your BM class will drop. 

Why is Bonus Malus class important? Because the higher your rating, the cheaper the insurance. If your BM class is from 7-17, insurers will apply a discount (Bonus). However, if the rating is 1-5, insurers will increase the policy’s price (Malus).

With the very first traffic insurance policy, you’ll get the Bonus Malus score of 6 – a neutral rating because the insurer has no knowledge of you being a good or a bad driver. Every year, your rating will increase, decrease or remain the same. It’s important to note that the BM class will only grow if there have been no traffic accidents and if you’ve insured your car for at least 275 days in the past year. If the insurance period has been shorter, let’s say, six months, they will add up with the following year’s accumulated insurance days, gradually improving your BM class.

If you own multiple vehicles, e.g., a motorcycle and a car, each of these units will have a separate Bonus Malus class calculation. If you have several cars, the BM class will count exactly as if you had one car, meaning that if you cause an accident with one car, it will affect the rating for your other cars too.

 

Future insurance prices: more relevant and personalized

As we’ve explained, traditionally, insurance prices rely on demographics, car attributes, and your claim history. Telematics and tech innovations are about to change that, making insurance more relevant, personalized, and flexible.

Telematics is hardware or mobile phone-based technology for monitoring data such as vehicle location, fuel consumption, and driver behavior. Based on the data provided by telematics solutions, insurers can provide usage-based motor Insurance (UBI) services for their clients, e.g., Pay-as-you-drive or Pay-how-you-drive.

We at Cachet are firm believers that insurance should be priced based on your actual driving habits instead of just your demographics or claim history. We are happy to say we are moving in the right direction and already introducing features like measuring the driving time and driver’s behavior via the Cachet app’s new dashboard. This allows us to offer personalized insurance to our clients instead of issuing standard insurance policies. 

Such flexibility is especially appreciated by clients who don’t require the same kind of insurance coverage every day of the year. For example:

  • Part-time app taxi drivers who need taxi Casco a few days per week, not all the time,
  • Car collectors who drive some of their cars a few days per month,
  • Students who only drive when they’re back in their hometown, etc. 

 

The 21st century allows us to have increasingly dynamic and exciting lifestyles, and our insurance policies should be able to keep up and grant us the flexibility we deserve. 

Right now, a fast-driving business person using their car for several hours every day will pay the same amount of insurance premiums as a granny who only takes her car out on Sundays to meet her friends for brunch. In the future, insurance will be more adaptable and take into account our car using habits and driving behavior, better supporting the lifestyles we’ve chosen.

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