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Living with the wrong post code. How car insurance premiums are calculated?

Post codes are used to calculate car insurance premiums. It's unfair so make sure you get all the discounts you're entitled to.

Let's all be jealous of the Californians. Not only do they have great scenery and climate, but they've also managed to outlaw the "zip code" lottery. Every time there's a state election, the voters can be asked their opinion on anything. And what they say goes (so long as it's constitutional). In 1988, they voted their approval of Proposition 103. This was designed to force their car insurance companies to switch from basing premiums on where they live, and focus on actual driving record. The insurers were supposed to comply within two years, but the final, final deadline was 14th July, 2008. Things move fast over there when corporate profits are at stake. So now almost all companies have dropped where people live down the list of factors used to calculate premiums. It's still relevant because there may be high rates of TWOC or just a lot of bad driving in particular districts. But the primary factor is each Californian's driving record.

Shame about us (just to be clear, that's UK, not "U.S."). According to current research, UK car insurance premiums are based on the number of claims made by the people who share the same post code as you. So kudos for those of you who decided to live in Dundee. You have the lowest premiums. And tough luck to those in East London, you have the highest.

So let's go for some general rules. If you live out in the countryside, there are fewer people around, not so many accidents and less car crime. You can expect lower premiums than those folk who left the land and went to find their fortune in the big cities. Busy roads and higher crime rates mean more accidents and more damage to your vehicle if you leave it parked out on the streets. The more claims, the higher the local premiums. Except there are exceptions. If you pick some idyllic village in the Cotswolds where every next car is a Beamer (and the ones in between are expensive sports cars), having an accident triggers big claims. Have you seen how much some mechanics charge to breathe when in the presence of an imported "luxury" car? So, common sense will usually give you the right answer. Areas with thinner populations in Scotland, Wales, East Anglia, etc. are cheaper. Similarly, areas popular with retirees have fewer claims because they drive more carefully. But the big built-up areas of London, Manchester, Liverpool, etc. cost more.

Now we could get all political about this. Petition Parliament, hold mass rallies, make ourselves heard in protest. Except this is not something people get worked up about. It's not the same as the price of petrol. We're all willing victims when it comes to paying the premiums asked. After all, visiting the local Magistrates' Court too often for failing to carry valid car insurance can get expensive. But you can do a little (assuming you don't have relatives in Inverness who will give you a new home). Shop around using a site like this. Different insurers weigh the risks differently. Get as many online quotes as you can, making sure you check exactly what each policy covers before you make a final decision. Make sure you get the no claims bonus you're entitled to, increase the uninsured excess and get all the discounts available. If that means getting on the phone, do it! But remember. Don't use the telephone number you get in the renewal pack for your existing company. Call the open number for a full quote from scratch to see how it compares.

Glenn Marr, director of the IFB

"This fraud has an impact on the cost of insurance for genuine customers and the industry is committed to rooting out and bringing to justice those criminals who target insurers." - says Glenn Marr, director of the Insurance Fraud Bureau.

Read more about UK car insurance fraud, top ten areas for suspicious claims and types of fraud.