A no claims discount (NCD) – or no claims bonus (NCB) – that a policyholder has accumulated over time can help lower the cost of car insurance. The amount saved is proportionate to the consecutive number of years that a person has held a policy in their name without making a claim. Brand new drivers setting up a policy for the first time will start with zero no claims discount, but, according to the Association of British Drivers, even a year’s worth can lead to reductions of up to 30 percent. Some insurers will offer incentives to help policyholders accelerate their savings potential – earning a year’s no claims discount in just 10 months, for example.
The longer you go without making a claim, the less risk the insurance company feels they are taking on your policy, and therefore the larger the discount. Every type of insurance policy (third party only, third party fire and theft, and fully comprehensive) can accumulate a no claims bonus.
On average, insurance companies will limit the discount permitted to five years - which can still result in savings of up to 60 percent. Some may allow more, but the way this discount is factored in and at which point in the calculation it is applied may vary, leading to different results.
Just one no claims discount may be used per policy, so it will not be possible to use a single discount and apply it to multiple cars. If you are looking to insure more than one car through the same insurer, however, they may take this into consideration.
In the event of an accident, unless the insurance provider can recover all of its costs from another party, such as the driver who may be at fault, then some or all of the no claims will be lost. If the accident involves a third party, but the driver at fault cannot be determined, then the costs will be split, and again the no claims will be affected.
The same applies if a car is stolen, as the insurance provider will be unable to recoup its costs from another company, and therefore the no claims discount will be at risk.
It is worth looking into the kind of claims that can affect the discount, as some policies will allow for windscreen damage, keeping the no claims bonus intact. In the case of minor damage, where the cost of the repair is small, it may be better to pay the amount yourself rather than going through the insurer, as a claim will mean a reduced discount.
How insurance providers lower a no claims discount in the event of a claim may vary. For example, if the full amount of five years has been achieved, and it is the driver's first accident, it may be reduced to a set amount, such as two years.
By paying a small fee to the provider, the full discount will remain if a claim is made. It's likely this fee will be less than the discount available by having five years of no claims, although there may be limits in terms of how often the protection can be used, and two claims or more per year may still have an effect. Paying for no claims protection does not prevent the price of the policy from increasing later on.
Usually it is only the policyholder who accumulates the no claims discount, but some insurance providers will also allow named drivers to build theirs. This can be useful if that person eventually wants to buy their own car, as they can use their no claims status for their own insurance, but often this will only apply if using the same company. If a policy lists any named drivers and they have an accident, this can still affect the no claims discount of the policyholder.
When an insurance policy is due for renewal or has expired, proof of a no claims discount will be available from the provider, to be considered by a different company if necessary. Most insurers will only accept a no claims accumulated within the UK, but it is worth asking about this.