Car Insurance Brokers
guide to Car Insurance
No Claim Bonus / Discount:
A reduction of premium allowed at the
time of renewal to an insured who has made no claim in the
previous period or periods or insurance. They are very common
in motor insurance. The motor policy normally sets out a progressive
scale which shows that the maximum bonus in private car cases
will be reached after four years. If there is more than one
vehicle insured under the policy, the no claim bonus is applied
separately to each vehicle as if a separate policy had been
issued for each vehicle. If an insured loses his no claim
bonus following a claim for damage to his vehicle, he can
include the loss as an item in any claim for damages against
a third party whose negligence led to the claim.
No Claim Discount:
The practise of allowing a No Claim Discount
to a motor 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. Consider two cases in this context.
. Insured ‘A’ has driven accident-free and claim-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 unprotected maximum No Claim Bonus that 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 motor policies contain
a No Claim Discount clause in the following form although
it varies from Car insurance company to company:
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 the policy the renewal premium shall
be reduced as follows
Period of Insurance
The preceding year: 30%
The preceding 2 years: 40%
Preceding 3 years: 50%
Preceding 4 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 were earning a 50% or 60% reduction
he would go back two steps to a 30% or 40% reduction following
a claim.
The wording of the No Claim Discount clause varies in this
respect and some insurers 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
scale. Some insurers adopt a five or even six-year scale,
commencing at 25% after one year and rising to 65% after five
or even six years.
There is little doubt that No Claim Discounts and their applications
produce the largest number of complaints and grievances where
motor insurers and their practise 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 UK 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 be seen and appreciated by drivers in
this category.
It must be emphasised that the discount
is a ‘No Claim’ discount, not a ‘No Blame’
one. If a claim is made under the policy then the 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.
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