How do no claims discounts work?
Les Roberts. Apr 07 2014 at 12:58 pm
READ: The BIG changes coming to proof of claims in 2015
If you’ve amassed five or more years of claims-free motoring, you should be reaping the benefits of a hefty discount on the cost your annual car insurance premium – 70%, 75% or even 80%.
Of all the ways to reduce the cost of cover, accumulating several years’ no claims discount (NCD) is arguably the most effective.
But if you thought no claims discounts on car cover were fairly straightforward, think again – each insurer plays by its own rules, potentially creating distress and confusion for those who make a claim.
Counting the cost of making a claim
This issue of NCD deductions – when the value of an NCD is slashed – came to our attention when a concerned customer contacted us via the comments section of our motoring blog. She’d seen her eight year-NCD cut to just three after making a claim – a much bigger drop than she was expecting.
The customer wrote: “I am insured with Churchill, I have 8 years no claims. Unfortunately, I had an accident and Churchill informed me I would lose 2 years no claims and added that because they only consider 5 years they will be leaving me with 3 years no claims bonus.
“Surely this is wrong because when my renewal is up and I search elsewhere there ARE other insurance companies who consider 9+ years. Does anybody have any advice regarding this?”
The industry norm is to deduct two years’ worth of NCD in the event a claim, so we contacted Churchill to check its position and whether the customer would, in effect, lose five years’ NCD following her claim.
A spokesperson said: “Churchill offers an 80% discount as an introductory offer for new customers who have eight years or more NCD, and we continue to reward up to nine years’ NCD for existing customers who remain claim-free. However, if a customer makes a claim and they have over five years’ NCD this will be reduced to three years’ NCD after a first claim.”
This seemed excessive, so our next port of call was the Association of British Insurer (ABI), to find out if there is an industry standard when it comes to the allocation of NCD.
It turns out there isn’t, and it’s completely at the discretion of each insurer.
Stephen Sobey from the ABI said: “The no claims bonus is a tool used differently by each insurer, there is no standard formula across the industry. That said, the UK motor insurance market is highly competitive and we would recommend shopping around to achieve the best quote possible .”
So we did some shopping around of our own, to find out how different insurer measure up against each other when it comes to deducting NCD, specifically in the case of our customer who had accumulated eight years’ NCD before making a claim.
The results were eye-opening to say the least…
How a claim affects your NCDSource: www.moneysupermarket.com