The connection between engine capacity and your car insurance premiums

As you are most likely aware, in Hong Kong it is mandatory for all drivers and owners of vehicles to have car insurance that meets the minimum level of coverage required by law. While there are a myriad of car insurance companies and plans in the SAR that offer varied levels of coverage to suit different needs, choosing the right plan at the best value possible can be challenging.

To make matters even more complicated, you will also find that there will be a wide variance in premiums, with many factors that will go into the calculation of what you will be charged for your car insurance. One such factor is your car’s engine capacity.

But, what exactly is the connection between your car’s engine capacity and your insurance premiums? The answer to this question is not as straightforward as you might think, as the calculation of your premium in relation to the size of your engine involves a number of considerations. To help, this article delves into the connection between engine capacity and how car insurance premiums are calculated.

Guidelines set by the Hong Kong Accident Insurance Association

During the underwriting process, the majority of insurers in Hong Kong will consider the premium calculation guidelines set out by the Hong Kong Accident Insurance Association, established under the Hong Kong Federation of Insurer’s (HKFI) General Insurance Council. Fully recognized by the Hong Kong Government, HKFI is a self-regulatory body of insurers, and was formed with the goal of advancing and promoting the development of the insurance business in Hong Kong. Interestingly, the guideline for motor insurance ratings based on the vehicle’s engine cylinder capacity (cc) was last updated almost 20 years ago (in 1998), and there remains no update at the time of writing this article whether there will be any adjustments to the guideline (if any) in the future.

Car insurance types

Before we go on to further explaining the Accident Insurance Association’s guidelines, a brief explanation of premium calculations based on your type of motor insurance policy is necessary. 

There are two types of car insurance in Hong Kong: third party only and comprehensive. Third party only insurance covers the policyholder for the liability to third parties for property damage, injury, or death, and is the minimum coverage required by the Hong Kong Government. This type of auto insurance plan won’t cover damage to your car or personal injuries, whereas comprehensive auto insurance protects not only third parties, but also you and your vehicle.

As third party policies won’t provide cover for your own vehicle, your engine size will not usually be considered a large differentiating factor in premium calculations. On the other hand, the engine cc of your vehicle will be a factor that influences your comprehensive auto insurance premium calculations.

Engine size related premium calculation guidelines

An engine’s cc, measured in cubic centimeters, refers to the car’s engine capacity, and is specified in the car registration document. The suggested underlying premiums for vehicles with bigger engines will be relatively higher than for vehicles with smaller engines. That being said, car insurance premiums are also calculated based on a certain percentage of the sum insured. The Accident Insurance Association’s guideline, which still acts as a reference point for many insurers today, and suggests premiums to include the following percentage of sum insured. On top of the specified percentage, there will of course also be a "standard premium" added to the calculation, as shown below:

• Private vehicles with up to 1,650 engine cc: +8.4% + $8,600
• Private vehicles between 1,651 cc to 3,500 engine cc: +5.5% + $9,500
• Private vehicles with over 3,500 engine cc: +5.8% + $9,700

Note: premiums for commercial vehicles (e.g. trucks/ taxis) are calculated differently.

At this point you may be asking, “Why is the added percentage of sum insured higher for vehicles with smaller engine cc?” After all, it doesn’t seem to make sense when considering that cars with bigger engines usually go faster, meaning a higher risk of getting into an accident and a higher cost to replace parts after the accident.

One possible explanation for this is that the premium guidelines were published at a time when vehicles with smaller engines were less common in 1998, thus the percentage for what at the time was the most common engine size range (1,651 cc to 3,500 cc) is lowest. Despite engine sizes of 1,650 cc being commonplace today, many “traditional” insurance companies still adhere to such guidelines, although a lot of insurers will either follow it loosely or use their own premium calculations. That being said, it’s not surprising to see instances where smaller engine vehicles are actually being charged higher premiums than a vehicle with a larger engine.

Final advice

The factor of engine capacity calculations, among all the other factors that influence car insurance premiums, all explain why car insurance premiums have such a wide variance in Hong Kong. As such, it’s paramount that you find the right plan for your protection and budgetary needs with the help of an experienced broker like Kwiksure. With over 16 years’ experience providing motor insurance as well as other key insurance products in Hong Kong, our helpful advisors are on hand to provide impartial advice and offer insurance policy options as well as customized plans that fit specifically to your needs.