Auto insurance is an inevitable expense for every driver, many of whom opt for third-party insurance to save costs. But does the lower premium make it a more suitable choice for you? And do you truly understand the differences between third-party and comprehensive insurance in the protections they afford to you?

To save money, it is more useful to understand how insurers set the premiums for each driver, including how the vehicle owner's driving experience and the vehicle brand weigh in. In the following, we’ll analyze the 9 major factors affecting the premiums set by insurers one by one. A good understanding of these principles may well help you save a bunch in car insurance year after year.

Is Car Insurance Necessary?

Under Section 4 of the Motor Vehicle Insurance (Third Party Risks) Ordinance (Chapter 272), all vehicle owners must secure third-party insurance for their vehicle, to compensate for possible personal injury or death caused by their car to a third party. Offenders can be fined HKD $10,000 and imprisoned for 12 months, and may also have their driving license suspended for 12 months to 3 years.

Coverage of Third-Party Insurance Vs. Coverage of Comprehensive Insurance

Auto insurance can be divided into third-party insurance and comprehensive auto insurance. Since the former provides less coverage, its premiums are also normally lower.

Third-Party Insurance

In Hong Kong, third-party insurance is the minimum requirement under the law. It is illegal for any driver to drive a vehicle without third-party insurance or its equivalent. Third-party insurance covers bodily injury or property damage suffered by a third party other than the vehicle owner or policyholder. Suppose you have this insurance, and you accidentally hit someone when driving, you’ll need to foot the car repair bill yourself, but the third-party insurance will compensate the injured for their medical expenses.

Comprehensive Auto Insurance

Comprehensive insurance gives the widest scope of coverage. In addition to the coverage of a third-party policy, it will also provide coverage for the car itself.

The vehicle owner can claim compensation from the insurer for damage to the vehicle, personal injury and death of self or a third party, and property damage or loss suffered by a third party.

Options Other Than Third-Party and Comprehensive Insurance

If you feel that comprehensive insurance is too costly and the coverage of third-party insurance is not enough, you can consider securing the following plans:

1. Third-party fire and theft insurance: Third-party fire and theft insurance can provide additional coverage for your vehicle, which means that if it catches fire or is stolen, you can file a claim with your insurer.

1. Secure an upgraded third-party policy: Some third-party policies allow the vehicle owner to opt for additional coverage, such as "windshield coverage". If the windshield of the insured car is damaged in an accident, it can be replaced at a designated repair center for free (the maximum compensation is HKD $3,000), and there is no need to pay any deductible. What’s more, the highly-valued no-claims discount (NCD) will not be affected. Other third-party policy upgrades include personal accident coverage, around-the-clock emergency towing service, etc.

1. Designated repair center: This means that the vehicle owner will have to take their car to a designated center for repairs. Even though this may create some inconvenience, it'll also lower your premium.

1. "Personal accident and medical" coverage: This is specially designed for third-party insurance policyholders. It includes emergency towing, temporary replacement car services, etc. At the same time, personal accident coverage is provided for the insured and their passengers.

9 Major Factors Affecting Premiums of Auto Insurance

When a vehicle owner applies for auto insurance coverage, the premium will be decided based on the following factors:

1. Driving experience (license age) and age of the owner

The driving experience and age of the vehicle owner are the most important factors. Normally, insurers will deny auto insurance coverage to drivers under the age of 25 or vehicle owners who got their license less than 2 years ago. This is because young drivers lack driving experience and are more likely to be involved in traffic accidents. Accordingly, even if these drivers eventually manage to find an insurer willing to provide coverage, their premiums will still be higher, and the policy often comes with a deductible.

2. NCD/NCB (no-claims discount)

The NCD is an incentive mechanism for auto insurance. If a policyowner makes no claims for a specified number of years, the insurer will give them a certain percentage of premium discount.

Generally speaking, the NCD/NCB offered by insurers in Hong Kong for private car insurance is as follows (for reference only, the NCD/NCB policy of each insurer may be different):

3. Vehicle age

The age of your vehicle has a huge bearing on your insurance premiums. Generally speaking, for vehicles over 10 years old, the insurer will impose a surcharge on the premium. That’s because older vehicles are generally less reliable, so the insurer will be taking on more risks.

4. The make and horsepower of the vehicle

With regard to brands, the parts of certain vehicle brands are relatively expensive, and may even need to be shipped from overseas. That will have a pronounced impact on comprehensive insurance premiums.

Vehicle performance has a more obvious impact on the insurance premiums of third-party policies. The more powerful the engine and the faster the vehicle, the higher the insurance premiums will be, especially for motorcycles and scooters. This is because engine horsepower has a direct bearing on vehicle performance, and vehicles with higher horsepower ratings have a higher chance of speeding and a higher risk of collisions.

5. The vehicle’s market value

If you opt for comprehensive insurance, the value of the vehicle at the time of securing insurance will have a direct impact on the premiums. The higher the car price, the higher the insurance premium will be. The premium for a high-end sports car is much higher than that for a lower-end vehicle, and the premiums for newer models are also a bit more expensive than for older ones. Since expensive cars mean higher compensation amounts, they also present higher risks for insurers.

6. What the vehicle is used for

When you secure auto insurance, the insurer will ask you to declare the primary use of the vehicle. If it's just for commuting to and from work, your premium will usually be unaffected. However, if your vehicle is not used for personal purposes, you will also need to pay higher premiums because of the higher risks involved. For example, if your vehicle is primarily used for business purposes like visiting clients and cutting business deals.

7. The amount of the deductible

When a policyholder makes a claim, they must first bear the deductible themselves, and the remainder will be borne by the insurer. For example, if the total claim amount is HKD $15,000 and the policy has a deductible of HKD $5,000, then the policyholder will have to pay the HKD $5,000 deductible first, and the remaining HKD $10,000 will be paid by the insurer. Each insurer and each policy will have different deductibles. Generally speaking, the higher the deductible, the more the policyholder will need to pay, and the lower the premium will be. By contrast, policies with a low deductible or no deductibles will naturally have higher premiums.

8. Driver occupation

The occupation of the driver responsible for driving the insured vehicle will also have a bearing on the premiums. If the driver is a professional auto racing driver, their accident risk will be much higher than that of an ordinary employee working from an office. In addition, people in the construction industry often drive to construction sites, so the risks of accidents and vehicle damage are also naturally higher.

9. The history of claims and points deducted from the vehicle owner

Past claims and traffic violations naturally will affect the premiums. The more points deducted and accidents involved in in the past, the higher the premium will be.

How to Select the Right Auto Insurance Policy

You can compare different auto insurance plans based on the four criteria listed below.

1. The premium level

As they say, you get what you pay for. A very affordable insurance plan will also provide relatively limited coverage. Generally speaking, third-party insurance costs much less than comprehensive insurance. However, since property damaged in accidents is not covered by third-party insurance, your personal losses there could be considerable. Lower insurance premiums can lead to bigger expenses after an accident, especially if you’ll need to use your own funds for your car’s repair work.

2. Additional coverage

There are many different types of auto insurance plans on the market. Some plans will have “convenience” as a selling point, such as the convenience of roadside assistance or hassle-free windshield replacement. Other plans will include personal accident coverage and medical services. Before you decide on a plan, carefully consider whether you really need these extra plan features and benefits, otherwise you may just be paying for things that aren’t necessary.

3. The size of the deductible

When comparing different auto insurance plans, you should have the option to choose a plan with a higher deductible, which carries the benefit of much lower premiums. However, are you ready to pay a large sum in repair costs yourself in the event of an accident?

4. Shop around

Technological advances have made it much easier than ever to compare car insurance plans online. To choose the most suitable and affordable auto insurance plan, you can try to obtain quotations through different channels and compare the details of coverage and exclusions of different plans. Collecting information may take some time, but when you consider the premium savings down the road, you’ll see it’s time well spent.