Some motorists are lucky enough to qualify for cheap car insurance, others have to pay horrendous premiums, yet others struggle to find cover at all. Whether a driver pays a tiny premium or a huge one depends on complex calculations which can vary enormously depending upon which insurance company is asked for a quote. But how did all this develop?

How insurance began

The first UK insurance policies were marine ones. Sending a sailing ship to the far reaches of the world to buy or sell goods was a risky operation. Not only storms or shipwreck had to be faced but also the possibility of piracy. One single hijacked or destroyed cargo could bankrupt the company that owned it and so a group of business would get together and pool their resources, agreeing to indemnify, between themselves, any of their members that suffered a loss. This way a loss was shared amongst many companies instead of just one; no individual business could then be wiped out by a single incident.

Why insuring was more complicated than it seemed

Whilst the concept was simple on the face of it, it was in fact more complex. Certain routes were more dangerous than others. Certain types of cargo were more at risk of being spoiled or stolen. Some ships were better built, and therefore safer, than others. Some merchants had a better, or worse, record of losses than the rest. Some form of risk calculation had to take place, and often this would be the subject of discussions between groups of merchants in smoke-filled coffeehouses to agree a reasonable premium for any particular sea journey.

How the role of underwriter developed

It was not long before the concept of insurance, in which the risks of a few are shared amongst many, spread to other areas of life and now there is little that cannot be insured whether you want to cover your pet chinchilla against falling ill to the cost of your space rocket exploding on the launchpad.

This meant that the new science of risk assessment had to develop and initially this was a fairly primitive system under which underwriters relied partly upon an initially small amount of data about the likelihood or costs of claims, and their own intuition. Finding the right balance between risk and the premium charged could result in good profits, getting it wrong could lead to horrendous losses.

The dawn of car insurance

Fast forward to the coming of the car and compulsory car insurance. In these early days there were no very cheap car insurance websites such as prudent plus.com and so again individual underwriters had to calculate realistic premiums. Slowly however more and more data was gathered about the possibilities of accidents, and the costs of those accidents, for different age ranges, cars, postcodes, and even occupations.

The development of price comparison

The arrival of cheap computers made it possible for very fast calculations to be made, but there was one major factor; every insurer used a different dataset, which meant that each of them came up with a different premium than everyone else for a particular motorist driving a particular car. this is where the price comparison sites came in; for the first time someone looking for car insurance quote compare numerous ones from many different companies without involving a broker.

Drawbacks to price comparison sites

A reasonable criticism of the price comparison site system is that it has encouraged motorists to look for the cheapest possible price, regardless of the benefits. This has resulted in price cutting on a huge scale but in order to stay in business the cheaper companies have had to also cut their costs dramatically. This has led in many cases to them providing a far worse service than they should, and there have been innumerable complaints about difficulties getting in touch with these companies, slow processing of claims and quibbling over settlements.

Better ways of calculating premiums

Many people, particularly those considered to be more likely to be poor risks, such as young and inexperienced drivers and those driving cars with bad accident reputations, have felt that the whole system of calculating risk is unfair. After all, just because a new male motorist, for instance, statistically has a higher risk of being involved in a claim does not necessarily mean that every one of them will. Some will be more reckless in their driving than they should be, whilst others may be very careful and eager to improve their safe driving skills.

It is not really fair that people in both categories should pay the same premium, which is why blackbox (or Telematic) policies were brought in. These are designed to monitor the way in which cars are driven so that those who drive carefully and avoid breaking speed limits, harsh braking and fast cornering can be rewarded with lower premiums, and those whose driving is more likely to result in an accident can be penalised, or even have cover withdrawn completely.

Whilst these systems are not perfect; after all the technology is still fairly new; they may represent a fairer way for future premiums to be charged. also, the coming of the driverless car (if it ever does reach fruition) could mean the end of individually calculated car insurance completely, with premiums perhaps paid by manufacturers based on the accident record of their particular cars. this is all supposition however; none of us have a crystal ball to see into the future.