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Protected No Claims – Is It Worth It?

Mon, 18/08/2014
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No claims discount (NCD) is one of the biggest rating factors when it comes to motor insurance and building it up can lead to large discounts from insurers. NCD, or no claim bonus as it’s commonly known, is a discount which a driver accrues for every calendar year they remain claim free, usually reaching a maximum level of discount after 5 or 6 years.  Practice varies between insurers but the maximum number of years NCD that insurers will show on their records is 9 years.

Depending on the number of years NCD that a driver has earned, the insurance company will discount  policy premium in accordance with their NCD scale. Most insurance companies will offer a 30% discount if provided with proof of 1 years claim free driving and can offer up to 65% or 70% discount if the maximum discount is applied. The table below indicates a typical level of discount on offer based upon the number of year’s claim free driving.

1 year no claims: 30% average reduction

2 years no claims: 40% average reduction

3 years no claims: 50% average reduction

4 years no claims: 60% average reduction

5+ years no claims: 65% average reduction[1]

It is common practice that insurance companies offer their maximum discount when a driver reaches 5 years no claim discount although some will even offer further discounts for 6 or more years.

So what happens to your No Claim Discount if a claim is made against your insurance?

Initially, your insurance company will assess if you are the “at fault” party and if so they will meet the cost of the damage caused by you, provided it is covered under the terms of your insurance policy. If you are deemed “at fault” then this will have an adverse effect on your no claims discount. The usual process is to reduce the NCD by means of a “step-back” in accordance with the insurer’s published guide.

The common practice is to “step-back” the NCD by 2 levels. Therefore, as can be seen from the table below a 5 year NCD would reduce to 3 years. As the maximum NCD has been earned at 5 years in this example, any number of years NCD in excess of 5 will also step back to 3 years. The table below indicates the step-back guide based upon the number of years no claim discount.

The above figures are all based upon the policyholder having a standard no claims discount without the benefit of protection. If the policyholder has elected to protect their no claims discount then the step-back process does not come into play until a specified number of claims have been incurred. It is common practice for insurers to allow two claims in any three year period to be incurred without prejudice to the level of NCD.

The table above indicates how the no claims discount protection operates. The table is based upon industry standards but this may vary slightly depending upon the insurance company. If you do elect to protect your no claim discount then you should ascertain from your insurance company exactly what the terms and conditions apply to their NCD protection.

How much extra does it cost to protect my no claim discount?

Well this all depends on the number of year’s discount that you seek to protect. Most insurers won’t offer protection until you have accrued 4 years NCD and the average increase in premium to protect 4 or more years is 5.86%. Compared to the likely increased premium if you make a claim under a policy without protected NCD, and thus suffer a step back in your level of NCD, this would seem to be a financially viable purchase. Some specialist insurance companies are willing to offer protected no claim discount to policyholders with less than 4 years NCD but this does come at a greatly increased premium.

The table below shows the premiums quoted for protected and unprotected no claim discount and the percentage of premium increase.

As can be seen above some insurance companies are willing to offer protected no claim discount for drivers with only 1 year’s worth of claim free driving but this almost doubles the premium. In practical terms protection of less than 4 years NCD is not usually purchased.

All quotations were provided by Be Wiser Insurance based upon a 28-year-old male farmer living in Yeovil on an 2011 Audi A1 sport 1.2. All quotations were produced on 14th July 2014.


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