Motor insurers have moved to a new Vehicle Risk Rating (VRR) system to determine the price of premiums for drivers based on the car they drive.
It has replaced the insurance group rating system – rising from group 1 to 50 – which previously determined the risk level of vehicles based on the car’s original value, cost of replacement parts and its performance, including power, acceleration time and top speed.
The body that has created VRR says this new system should provide a ‘more comprehensive and dynamic framework’ to allow insurers to more fairly calculate premiums based on risk because by taking into account factors such as the number of advanced safety systems installed in models, sustainability of repairs and theft trends.
However, experts have told This is Money the new system could sends the cost to cover EVs soaring…
Motor insurance providers have started to use a new Vehicle Risk Rating system to calculate the cost of premiums based on the car you drive. Here’s how it works and why EV owners could get stung by the new format
What is the Vehicle Risk Rating system?
The new VRR system has been launched by automotive risk intelligence specialist, Thatcham Research, which is funded by the insurance sector.
It says it will ‘improve the accuracy of vehicle insurability assessments’ by taking into account a greater depth of information about models, especially around the advancements in safety tech installed in the latest cars.
Thatcham told us: ‘The new Vehicle Risk Rating system uses market performance data, collected in collaboration with vehicle insurers, to account for dynamic factors such as advancements in technology, an increased focus on sustainable repair, and emerging theft trends.
‘This offers insurers more granular insights into vehicle risks while supporting the Thatcham Research mission to enhance safe, secure, and sustainable mobility.’
How does it calculate the risk of your car?
The new rating system assesses risk based on five different parameters:
1. Performance
The first elements taken into account is the performance of your vehicle, This includes evaluating the vehicle’s top speed, 0-to-62mph acceleration and the technological level of the engine itself.
2. Damageability
Each vehicle is reviewed for how the design, materials, and construction influence repair costs and damage severity.
3. Repairability
This focuses on the ease and cost of repairs, encouraging repair-friendly vehicle designs. Of the five parameters, this is weighted highest by insurers.
4. Safety
Analyses active and passive safety systems, including crash avoidance features.
5. Security
Examines physical and digital security measures, leveraging Thatcham Research’s New Vehicle Security Assessment expertise.
Each model will be given a scaled score of 1 to 99 for the five different risk parameters. These are: performance; damagability; repairability; safety; and security
In total, some 1,300 different data points are assessed for each model.
The five assessment parameters will receive a score on a scale of 1 to 99 to provide insurers with a ‘more granular understanding’ of vehicle risk and enabling ‘more accurate, individualised insurance premiums for consumers’.
Jonathan Hewett, chief executive at Thatcham Research, told This is Money: ‘New technology is challenging the existing motor insurance model, prompting an unprecedented shift in the balance of risk from the driver to the vehicle.
‘In response, we’ve worked closely with insurers, drawing upon cutting-edge data analysis to create a rating system that offers a more precise and detailed assessment of vehicle risks.’
He added: ‘VRR will not only help insurers price premiums more accurately but also encourage manufacturers to consider insurance outcomes when designing vehicles and implementing technologies.’
Will it retrospectively score older models?
The company says it has been working on the formula to power VRR for 18 months using a dedicated team.
However, it has so far only assessed nine vehicles in total and it will not retrospectively be providing VRR scores for older models.
Any vehicle sold before 1 August will instead retain its original group rating (1-50) and its risk judged by insurers based on this rating. The group rating system dates back to the 1970s.
It means motorists will only benefit from this fairer system if they buy a brand new motor.
When will insurers start using this new Vehicle Risk Rating system?
VRR was officially launched on 24 September.
However, for the first 18 months, insurers will be using it alongside the existing Group Rating System to calculate premiums.
This is to allow both motor insurance providers and car manufacturers to adjust before VRR becomes the sole reference for vehicle risk assessment.
The latest data from the ABI shows that motor premiums have started to fall having reached record high levels at the end of last year. However, the average cost of cover is still up 48% in two years
Experts warn VRR will be bad news for EV owners
Of the five parameters being assessed to measure risk for each vehicle, ‘repairability’ is the one that is most important because it will be weighted highest by insurance providers.
This is because repair costs for insurers have risen by 28 per cent in the last year alone and is the driving force for why premiums have reached record high levels over the previous 12 months.
According to the Association of British Insurers (ABI), providers have paid out £2.9billion in motor insurance claims in the second quarter of 2024. This is 18 per cent higher than the £2.5bn paid out between April and June in 2023.
‘Repairability is increasingly important,’ said Hewett.
‘Without a keen focus on sustainable repair at the design stage and vehicle launch… the industry’s environmental endeavours are at risk of being undermined by vehicles that become disposable too early into their use phase.’
However, this is particularly bad news for EV owners.
The high cost of repairing EVs could work against owners of electric cars as insurers are expected to weigh the repairability rating highly when calculating premium prices, Auto Express told us
Thatcham Research stated last year that electric vehicles are approximately 25 per cent more expensive to repair than their petrol equivalents and take 14 per cent longer to fix.
Chris Rosamond, current affairs and features editor at Auto Express, exclusively told This is Money: ‘Previously, car insurance was based on the more generic 1-50 group rating system, but factors such as an influx of Chinese EVs with insufficient spare parts back-up and a lack of critical repair information, or the introduction of expensive-to-fix tech such as LED headlamps or driver-assistance systems, were making it increasingly hard for insurers to assess risk accurately.
‘As a result, premiums have skyrocketed – and we are all paying for this knowledge gap.’
But while the new system promises greater transparency, it will inevitably lead to relatively higher insurance premiums for vehicles with high damageability or poor repairability scores.
‘VRR could negatively impact EVs if the difficulty of repairing EV batteries pushes scores up, because we will start to see elevated premiums for models affected,’ Rosamond added.
He says that while, in the short term, this potentially creates yet another barrier for motorists looking to make the transition to an EV, the new spotlight on repairability will inevitably force car manufacturers to improve.
‘VRR is a more comprehensive – and much fairer – assessment of vehicles, which is great news for consumers,’ he went on.
‘It highlights weaknesses in a way the industry has not seen before and will force manufacturers – including any new brands from China or elsewhere wishing to launch products here – to more closely consider repairability when designing new cars for UK roads.’
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