How are insurance premiums calculated for car insurance in Melbourne?

Understanding the cost of your car insurance premium

Car insurance premiums aren’t random — they reflect the unique risk profile of each driver. Insurers look at a wide range of factors to decide how likely you are to make a claim, and what that claim might cost. From your location to your driving history, these details all feed into what you pay for your insurance policy.

And there’s good reason to understand how it works. According to the Insurance Council of Australia, Australia’s general insurance providers are adapting to a changing environment, with car technology, repair costs, and environmental risks all placing pressure on the motor insurance market. Their 2025 Motor Insurance Roadmap highlights the need for more transparency and education around how insurance pricing works, especially for everyday drivers.

If you're ever in a car accident, Sheen has you covered for smash repairs. We can even guide you through your insurance claim.

How car insurance premiums are calculated in Melbourne

There’s no simple DIY method to calculate your premium, but understanding what insurers look for can help you estimate where you stand. If you're younger, have a less-than-perfect driving record, or live in a suburb with high traffic or theft rates, your premium is likely to be higher. Likewise, driving a performance vehicle or making regular claims can bump your costs up.

Melbourne drivers face unique pricing factors, including busy road conditions, dense parking, and higher claim volumes in some areas. Comparing policies from different providers is one of the most effective ways to manage your insurance cost, especially when your car insurance premium is calculated differently by each insurer.

How insurers calculate your car insurance premium

There’s no fixed formula that applies to every insurer, but most use similar variables in their pricing models. Think of it as a weighted system that includes:

• Your age and gender
• Your car’s make, model, and year
• Where you live and where you park
• Your driving history
• Whether you’ve made recent claims
• The type of cover you’ve chosen (e.g. comprehensive vs third party)
• Your excess amount

Each insurer weighs these differently, but the logic is always about assessing your likelihood of making a claim and what that claim might cost based on your level of cover. The way your car insurance premium is calculated will also reflect any add-ons or specific insurance needs you select during the policy setup.

What does a premium mean in car insurance?

A car insurance premium is the amount you pay your insurer to keep your car covered. It’s usually paid monthly or annually and reflects your level of risk. In exchange, your insurer agrees to cover your vehicle for the insured events listed in your policy.

The higher your risk (from an insurer’s point of view), the higher your premium tends to be. That premium may also reflect other factors such as optional extras or whether your car may be more expensive to repair. In some cases, a higher premium may be based on your driving history, vehicle type, or parking location, and these factors may attract a higher premium even if you haven’t made recent claims.

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Factors that impact your car insurance premium

While each insurance company has their own algorithm for calculating your insurance premium, the core factors remain similar. No matter how your car insurance is calculated, understanding these inputs helps you compare car insurance options more effectively. These are the same core variables used in many online tools and insurance calculator platforms.

1. Your policy

Some policy features will be more expensive than others, and the type of insurance you choose will affect your premium directly. There are three main types of car insurance cover available in Australia:

• Compulsory Third Party (CTP): This is legally required and covers injury to others but not damage to vehicles. In New South Wales, it’s known as green slip insurance, and is separate from optional cover like third party property damage.
• Third Party Property (or Fire & Theft): Covers damage you cause to other people's property, and sometimes theft or fire damage to your own vehicle. This is often referred to as fire and theft insurance, and may be included under third party car insurance policies with added features.
• Comprehensive: Covers both your car and other vehicles or property in most accidents, plus theft, weather events, and more.

Comprehensive car insurance is always going to be more expensive than third party cover, though some drivers find it offers better long-term value compared to cheaper insurance policies that offer limited coverage. You also need to consider your excess (the amount you need to pay if you make a claim), because if you have a lower excess or zero excess, you will likely have a higher premium. A higher excess often leads to lower premiums, but it means you’ll pay more out of pocket when making a claim.

Your policy can also include optional extras, which can add to the cost of your premium. Things like roadside assistance, getting a hire car after an accident, and windscreen cover can all add to your premium. Make sure you choose only the options that are important to you, and always review the product disclosure statement so you understand exactly what your policy includes. This applies whether you're selecting car, home insurance, or travel insurance — each insurance product is different.

Choice of repairer

Choice of repairer after an accident is an essential policy feature if you don't want just any old panel beater fixing your precious vehicle. Make sure you have the right to choose who repairs your vehicle.

2. Your age

According to Victoria Police, younger drivers are statistically at a higher risk of getting into accidents than older drivers, so people under 25 years of age tend to pay a higher insurance premium. You can't change how old you are (except by waiting), so there's not much you can do with this information if you're under 25. If you're a bit older, though, read about the best car insurance for over 30s.

3. Your driving record

If you've had to make insurance claims in the past for accidents where you were at fault, you're going to have a higher insurance premium, unfortunately. This is one of the biggest factors insurance companies use to estimate your risk as a driver.

If you have a clean driving record, then no worries, but even one incident can lead to an increase in the cost of your premium. But if you've had to make a claim, the good news is that insurance companies can only ask if you've made an at-fault insurance claim in the last five years. You might have to do some waiting, but once it's been 5 years since your last claim, you can shop around for a lower premium.

4. Your car

Insurance companies will look at the vehicle you drive when calculating your car insurance premium. This is because some types of vehicles are statistically more likely to be involved in an accident or more expensive to repair or replace if they're damaged. If you're in the market for a new car, it's probably worth considering the cost of insurance and the market value of the vehicle when choosing your next vehicle.

5. Your location

If you live in an area with a higher crime rate, this may have an impact on your car insurance premium. This means insurance companies will also consider where you park your car at night. Your car will be safer if it's parked in a locked garage than if it's parked on the street, after all. If you use your car for business purposes or drive regularly in high-risk areas, this can also impact the premium.

How to lower your car insurance premium

While you can’t control everything, there are a few steps you can take to lower your premium:

• Increase your excess (if you can afford it)
• Drive safely and keep a clean record
• Choose a lower-risk vehicle
• Park your car securely (preferably in a locked garage)
• Consider bundling policies or asking about loyalty discounts
• Only pay for the cover you need, and review your insurance product regularly to make sure it still matches your driving habits and vehicle use

Choosing a high-quality repairer like Sheen can also help if you want to avoid repeat claims and pay a lower premium long-term. Not only can it result in a lower premium in future, but it also ensures you're supported in the event of a claim by someone who understands how car insurance policies work across Australia.. When your car is properly repaired after an accident, you're less likely to face repeat issues, which could otherwise lead to more claims and higher costs. It also ensures your insurer continues to offer cover that truly covers your car and reflects your car registration and policy history.

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Why Melbourne drivers trust Sheen with insurance-related repairs

Whether you're making a claim or just want peace of mind, Sheen helps you take control after an accident. Here's what we offer:

• Our panel beaters deliver expert repairs for all makes and models, getting you back on the road safely.
• If your car isn’t drivable after an accident, we’ll tow your car to your nearest Sheen workshop quickly.
• Stay mobile while we fix your car with our fleet of accident replacement vehicles.
• We work with all major insurers and can help you understand your coverage.
• From not-at-fault to at-fault situations, we’ll guide you through the claims process and speak to your insurer on your behalf. Our team has worked with major providers across Australia, including those trading as a general insurance company limited under an insurance limited ABN.

For the very best in car repairs and claims support, get in touch with Sheen today.