When subscribing to an automobile insurance contract, the insurer proposes an annual premium amount involving elements related to the vehicle and the drivers, but also to its operating costs, its commercial strategy, and the fiscal taxes and social contributions.
The premiums paid by the customers of an insurance company must allow it to meet the costs of claims occurring during the year and all the costs necessary for its operation and development.
The pricing of motor insurance is based on elements imposed by legislation and on in-depth statistical analyses.
We present here the principles of pricing for the insurance of 1st category vehicles, ie passenger or commercial vehicles with a total authorized weight of 3.5 tonnes.
Pure premium calculation elements
The insurance premium paid by the subscriber of the contract is based primarily on a “pure premium” calculated by the insurer.
The pure premium (also called “equilibrium premium”, “risk premium” or “technical premium”) corresponds to the average amount strictly necessary to offset the risks between them, according to the mutualist principle of insurance.
It is determined by reference to the statistical history for previous years of the frequency of claims and their average cost.
To calculate the pure premium, the insurer uses criteria concerning the vehicle, its geographical area of circulation or garage, its use, the exclusivity of driving, the profile, and the history of the driver.
Nota bene: insurers are constantly seeking to refine and better understand the profile of their policyholders in order to reduce the risk of claims as much as possible (or at least adapt the premium accordingly). This is why the pre-subscription forms can include questions on the family environment or the profession for example.
1. The technical characteristics of the vehicle
Insurers assess the intrinsic risk of an automobile using criteria related to its power, value, and repair cost:
- The group, from 20 to 50, represents the power and dangerousness of the automobile (in particular via the weight/power ratio). The larger the group, the greater the risks and the higher the premium will be.
- Classes, price ( A to V), and repair (A to ZE) represent the value of the automobile. They are determined by their new value and the price of spare parts.
To know the group and class of a vehicle, car insurers rely on its SRA identification code, which can be found using its CNIT (Code National identification du Type) or Type Mines.
The geographical area and the use of the vehicle
To know the usual use of the vehicle by the driver(s) declared in the contract, the insurer needs specific data:
- Socio-professional use allows the insurer to know the actual conditions of use of the car. It may vary from one insurer to another (eg: work-home journey, leisure, regular customer visits, professional use, etc.).
- The mode of parking day and night: public road, closed garage, garden, collective parking…
- The mileage of the vehicle: a lower mileage reduces the risk of a claim and therefore the premium of the contract.
- The geographical area designates the place where the car is usually used (city, department, region). Insurers thus divide the French territory into several zones (numbered from 2 to 6) representing the level of risk for a vehicle. In general, it is more advantageous to insure your vehicle in a provincial department, far from a built-up area, than in an area with a high urban density.
- Exclusive driving or not.
2. Driver profile and background
The profile and background of the persons authorized to drive the vehicle are also fundamental data for establishing the insurance premium.
These data help to determine the risk of claims, for example, age, number, type of previous claims, driving experience, etc.
Note that, since 2012, the sex of the driver cannot legally no longer be used in the calculation of the tariff.
A novice driver, holder of a driving license less than three years old, or who has not been insured for three years before taking out the contract, may be subject to a tariff surcharge of an amount equal to 100% of the reference bonus (or 50% in the case of an accompanied driving apprenticeship).
From pure premium to benchmark premium
To the pure premium used to settle claims affecting the mutuality of the insured, the insurer adds:
- A safety load, i.e. an amount allowing it to cope with the natural volatility of claims (for example: if there is a sudden, and unforeseen, increase in claims during the year) ;
- Operating costs comprise acquisition costs (commissions to be paid to intermediaries, marketing and advertising, etc.) and management costs for the company’s various departments.
Nota bene: insurers are free to modulate their rates according to their own logic. These pricing logics evolve in particular according to the company’s commercial and strategic objectives (for example customer acquisition/retention).
The reference tariff presented by the insurer, therefore, adds the amount of the pure premium, the security charge, and the operating costs of the company.
This reference rate is also referred to as the commercial premium.
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Reduction-increase coefficient and increases for aggravating circumstances
Once the reference premium has been established, the insurer applies the legislative mechanisms allowing this premium to be modulated according to the good or bad behavior of the insured drivers.
This modulation of the reference premium leads to the establishment of the net premium.
1. The application of the bonus/malus
Imposed in 1976 on all French insurers, the reduction-increase coefficient (or bonus/malus) is used to reward or penalize policyholders based on their conduct.
In accordance with the appendix of article A121-1 of the Insurance Code, this coefficient applies to the reference premium for the guarantee of the risks of civil liability, damage to the vehicle, theft, fire, breakage of ice, and natural disasters.
2. Increases in aggravating circumstances
In accordance with article A121-1-2 of the Insurance Code, the insurer is entitled to apply an increase to the reference premium due to aggravating circumstances in the driving history of the insured.
The amount of this increase for aggravated risk is capped by law
- Alcohol level, driving under the influence of an alcoholic state: 150% of the reference bonus;
- Hit and run: 100%;
- Multiple claims (three or more claims over the annual reference period): 50%;
- Absence of declaration of aggravating or sinister circumstances over the last three years: 100%;
- Suspension of driving license from 2 to 6 months ( eg for speeding ): 50%;
- Suspension of driving license for more than 6 months: 100%;
- Several driving license suspensions during a period determined by the insurer: 200%;
- Driving license cancellation: 200%.
It should be noted that the total of these increases cannot exceed 400% of the amount of the reference bonus.
3. Miscellaneous discounts
Fewer are reductions on the reference premium for drivers who have accepted certain measures requested by the insurer. The repealed article A335-9-3 of the Insurance Code (but still mentioned in the appendix to article A121-1) lists the reductions for:
- Participation in a driving training or improvement course;
- The submission of the insured vehicle to the technical inspection;
- “good conduct” (excluding the application of the reduction-increase coefficient).
Total premium paid by the subscriber
The total premium is the amount actually paid by the subscriber. It adds to the net premium for any incidental costs and taxes imposed by law.
1. Incidental costs
Also called “premium supplements” or “policy costs”, they remunerate the management costs inherent in the contract alone. They are collected when it is issued or when an amendment is issued, as well as on the occasion of each due date.
2. Taxes and contributions
To the net premium and incidental costs are added the taxes imposed by law:
- Compulsory civil liability tax → 33%;
- Tax on other covers (damage, assistance, etc.) → 18%;
- Taxes for the benefit of the Guarantee Fund (compulsory RC guarantee: 1.2% + 0.8%; other guarantees: €5.90 / contract).
The amount of these taxes changes regularly, in particular the contributions to the Guarantee Fund. It should be noted that this amount is different for commercial vehicles assigned to agricultural operations and commercial vehicles weighing more than 3.5 tonnes.
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