Impact of Driving Habits on Your Car Insurance Premium

Like any other insurance policy, motor insurance premiums are based on several factors. One of the most influential factors is the policyholders’ driving habits. Most motor insurance claims are made for damage to a vehicle resulting from an accident. As in most cases, accidents are caused by poor driving habits, and your insurer takes such things very seriously.

The simple logic is that a person who has demonstrated poor driving habits is at a higher risk of being involved in an accident and eventually filing a claim. So, when an insurance company provides coverage to such a person, it takes on more risk than covering a person with good driving habits. To cover this increased risk, they charge higher premiums.

What Happens When You Are Flagged High Risk?

A poor driving record, with frequent claims or violations such as speeding, can result in being flagged as a high-risk customer. If you are flagged high risk by your insurance company, you will lose a good number of privileges, including:

Increased Premium

The first and most obvious impact of being flagged as high risk is increasing your premiums. The premium hike can be moderate to high, depending on the situation. The premium is the amount the policyholder pays to obtain an insurance policy. As this is the consideration that insurance companies receive for providing coverage, it is adjusted to reflect the risk they assume.

Decreased Coverage

Alongside the increased premium, coverage for people flagged as high-risk is also decreased. Coverage is the financial protection the insurance company provides in exchange for the premium. Generally, it increases or decreases in relation to premiums. However, despite paying high premiums, individuals who have been flagged as high-risk may receive decreased coverage in cases like this. The reason for this is the same as the premium: to adjust the increased risk the insurance company is taking up.

Loss of No Claim Bonus

No-Claim Bonus (NCB) is a special bonus offered to individuals with a clean record of not filing a claim during the policy tenure. It is provided as a discount that can significantly reduce the premium you pay. Depending on individual cases, the discount can range from 10% to 50%. Policyholders can even accumulate their No Claim Bonus (NCB) over several policy tenures.

Generally, it can reach the upper range of 50% in around 5 years. However, once a person is deemed a high-risk customer, they lose their no-claims bonus (NCB) in addition to facing increased premiums and reduced coverage. Indeed, it is a threefold financial setback.

Potential Denial of Coverage

If your driving habits have been consistently bad, you risk getting denied coverage even after the insurance company warns you. Although rare, insurance companies may shut their doors to those who fail to improve their driving habits despite higher premiums, lower overages, and multiple warnings. Now, as having at least the minimum coverage is mandatory by law in India, this means that not having any policy also results in losing your driving privileges.

FAQs

• Do insurance companies track real-time driving habits?

Some insurers use telematics devices or mobile apps to monitor real-time driving behavior like speed, braking, and acceleration.

• Can I take a defensive driving course to reduce my premium?

Completing a certified defensive driving course may qualify you for discounts and improve your risk profile with insurers.

• How long does a high-risk status affect insurance premiums?

High-risk status typically impacts premiums for 3-5 years, depending on the insurer and whether driving behaviour improves.

• Does the parking location affect my insurance rate?

Regularly parking in high-theft or accident-prone areas can increase your car insurance premium due to higher associated risks.

• Can installing safety features lower my insurance cost?

Adding features like anti-lock brakes, airbags, and dashcams can lower your premium by reducing the perceived risk of accidents.