Factors Affecting Motor Insurance Premiums

When customers ask, “Why is my premium higher than my friend’s?”, the answer lies in the factors insurers use to calculate risk. Motor insurance premiums are not the same for everyone—they depend on the vehicle, the driver, and even where the vehicle is used.

For sales professionals, understanding these factors helps you explain pricing transparently and build customer trust.

Key Factors That Affect Motor Insurance Premiums

1. Type of Cover Chosen

Third-Party Insurance → Fixed by IRDAI, usually lower.
Comprehensive Insurance → Higher, as it includes Own Damage + Add-ons.
👉 More coverage = higher premium.

2. Insured Declared Value (IDV)

Represents the market value of the vehicle (maximum claim amount).
Higher IDV → Higher premium.
Lower IDV → Lower premium, but less claim payout.

3. Vehicle Age & Depreciation

Newer vehicles → Higher premium (higher IDV).
Older vehicles → Lower premium, sometimes only liability cover offered.

4. Make, Model & Engine Capacity

Luxury or high-performance cars/bikes cost more to repair → Higher premium.
Higher engine capacity (cc) → Higher third-party premium.

5. Geographical Location (Zone)

Metro/urban areas → Higher premium (higher accident & theft risk).
Rural areas → Lower premium (lower risk exposure).

6. Driver Profile

Age, driving experience, and claim history affect risk.
Young drivers or those with past accident claims → Higher premium.

7. No Claim Bonus (NCB)

Reward for claim-free years (20% to 50% discount on OD premium).
Making a claim resets NCB, increasing future premiums.

8. Add-On Covers

Zero Depreciation, Engine Protect, RSA, NCB Protection, etc.
Each add-on increases premium slightly, but adds significant protection.

9. Voluntary Deductible

Choosing a higher deductible lowers premium.
But customer pays more from pocket during claims.

10. Usage of Vehicle

Private use → Lower premium.
Commercial use (taxis, trucks) → Higher premium (greater exposure to accidents, long hours).

📊 Example

Car A: Small hatchback, 3 years old, private use, Zone B → Premium: ₹12,000.
Car B: SUV, new, driven in metro city (Zone A), Zero Dep add-on → Premium: ₹28,000.

👉 Same insurance, but premium differs due to IDV, location, vehicle type, and add-ons.

💡 Sales Tip for Agents

Educate Customers: Show them why their premium is what it is.
Promote Value, Not Just Price: Higher premium often = better protection.
Highlight NCB Savings: Safe driving leads to discounts over time.
Encourage Add-Ons: Position them as affordable upgrades, not “extra cost.”

✅ Conclusion

Motor insurance premiums depend on a mix of vehicle-related, driver-related, and policy-related factors. For customers, this means pricing is fair and tailored to their risk. For agents, it’s an opportunity to build trust by explaining premiums transparently and offering value-driven solutions.

👉 Simple pitch: “Your premium isn’t random—it’s personalized, based on your car, your driving, and your choices.”