No Claims Discount & Bonus
The practice of allowing a No Claim Discount to a car insurance policyholder merely because he has enjoyed freedom from claim during a period of insurance is open to criticism and there is little doubt that the provision of such a premium discount is liable to abuse.
if you examine two cases in this context. Insured ‘A’ has driven accident-free and claims-free for a number of years and constitutes, for his insurers, what may be described as a ‘healthy’ risk. After a long ‘clean’ period, however, he is involved in an accident as a result of which a claim is made under his policy and the maximum No Claim Discount which he has so assiduously built up over the years is reduced as a result. Insured ‘B’, on the other hand, has had a succession of minor ‘bumps’ in recent years and has always met the cost of his own or a third party’s repairs out of his own pocket, perhaps because of an excess incorporated into his own policy conditions, perhaps because the amounts involved are not significant. Who is to say that insured ‘A’ is a worse risk than insured ‘B’ simply because ‘A’ has made a claim under his policy and has suffered a reduction in his No Claim Discount as a result? Insured ‘B’, with his record, is the client most likely to go out and have yet another accident with, perhaps, serious consequences this time for his insurers.
As it is, most car insurance policies contain a No Claim Discount clause in the following form although it should be noted that many car insurers will vary the levels and also use higher levels as a means of attracting new business.
In the event of no claim being made or arising under this policy during a period of insurance specified below immediately preceding the renewal of this policy the renewal premium shall be reduced as follows:
Period of insurance
The preceding year 30%
The preceding two consecutive years 40%
The preceding three consecutive years 50%
The preceding four consecutive years 60%
For each claim made during any period of insurance for which the premium has been reduced by a No Claim Discount the rate of any discount allowed at the next renewal shall be that for the equivalent of two years less than the number of consecutive years taken into consideration at the previous renewal.
The discounts that are quoted in the above specimen wording of a No Claim Discount clause refer to private car insurance. If a policyholder was earning a 40% reduction and makes a claim he would lose his entire discount at the next renewal but if he was earning a 50% or 60% reduction he would go back two steps in this scale and would earn a 30% or 40% reduction following a claim. The wording of the No Claim Discount clause varies in this respect and some insurers only allow only one year’s discount to an insured on maximum No Claim Discount after making a claim whilst others revert back three steps on a six year No Claim Discount scale. Some insurers adopt a five or even six year scale of No Claim Discount commencing at 25% after one year and rising to 65% after five or even six years.
An example has already been given of the sort of inequitable situation which may be produced through the operation of the standard No Claim Discount clause as it exists at present. There is little doubt that No Claim Discounts and their application produce by far and away the largest number of complaints and grievances where motor insurers and their practice are concerned, although it has to be admitted that until a better and more reliable system is devised the No Claim Discount system currently operated in the U.K. has to be accepted as being ‘most things to most men’ and the most acceptable in all the circumstances. There has to be a means of ‘rewarding’ the conscientious driver who drives accident and claim free for a sustained period and a percentage deduction from the annual premium is something that can bee seen and appreciated by drivers in this category.
It must be emphasized that the discount is a ‘No Claim’ discount and not a ‘No Blame’ discount.
If a claim is made under the policy then the Car Insurers will usually have suffered financially and it can be seen as fitting that the No Claim Discount should subsequently be reduced or withdrawn.
Despite this consideration, it is extremely common for an insured to maintain that he was not the cause of the accident giving rise to the claim and even though his insurers may have made a substantial payment for repairs to the insured vehicle, the insured may not be able to see why his No Claim Discount should be prejudiced.
The situation becomes even more difficult when the insured clearly was not to blame for the accident but, for some reason, his insurers have been unable to recover their outlay from the negligent party who may, for example, have been uninsured at the time. In most cases today Car Insurers will re-instate your no claims if liability is admitted or it is proven through the courts that you were not to blame for the damage.
The ‘No Claim Discount’ system gives rise to so many complaints and to much debate about it’s fairness and place in underwriting. It has been proposed by some insurers that an alternative system’ might not take the form of a series of ‘flat’ premiums charged by car insurers dependent upon the proven driving record of the insured.
Only when the insured has proven himself consistently good or consistently bad does he move up or down in the insurer’s rating scales.
Nearly all car insurance providers in the UK now offer ‘protected no claims bonus’ to drivers who have for example 5 years or more claims free driving. The protected no claims bonus covers your discounted years should you have to make a claim, whether it was your fault or not! The protected no claims bonus is usually offered as a car insurance policy add on and not included in basic standard policy covers.