A guide to no claim discount and protected NCD

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No Claim Discount

Many insurance policies will offer a discount when you have not made claims in previous years.  This can represent a significant saving for some policies. 

Why do insurers offer a no claim discount (NCD)

There are two reasons why insurers offer no claim discounts (NCD).  Firstly, the fact that you have had previous years when you have not claimed shows that you are not the type of customer that claims for every little thing and therefore a better risk for them to insurer.  Secondly, by building up a discount for not claiming your are less likely to claim in the current insurance period.  Many people who have built up sizable no claim discounts will pay for the damage of a minor accident e.g. a dent in the car or a damaged carpet themselves because when they consider the loss of NCD and excess its not really worth claiming.

When you get quotes for insurance make sure that you have a record of your full no claim discount entitlement so that you get the right amount of discount when you switch insurance.  This is an important part of getting the lowest price possible when you are shopping around for the best deal on insurance.

Protected no claim discount

Most insurers will allow you to protect your no claim discount for an extra premium.  You will find that often the costs of protecting your no claim discount is equivalent of making one claim or about 10% of the premium.  What is covered by protected NCD varies widely from insurer to insurer.  Some allow for an unlimited number of claims and others just one claim. 

The protected NCD con?

You should be aware that if you do claim (especially more than once) your premium will probably still go up even if you do have protected NCD.  The reason for this is that insurers believe that if you have claimed then you are more likely to claim again. 

Let’s look at this example:

Mr X has not claimed for 10 years and gets a 50% No claim Discount bringing his insurance premium from £500 to £250 a year.  Mr X then has 2 claims.  ‘Luckily’ for Mr X he had protected no claim discount so he gets to keep his 50% discount.  However, Mr X now has 2 claims on his history and that means that the risk premium for his insurance has increased from £500 to £1000.  So even though Mr X still gets a full protected NCD at 50% his premium will still double.  

Many of you would say this is unfair and that his protected NCD should ensure that his premium doesn’t increase because of the claims.  The sad reality is that’s not how it works.

The message here is consider the costs and benefits of protecting your NCD and make sure you understand what it does and doesn’t protect you from.  Then you can make a decision as to its worth and whether you want it or not.