A no claims discount is a discount applied to your car insurance premiums. It reflects a period of time that you have not made a claim on your motor insurance and your insurer will potentially reward you with a reduced annual premium. Your no claims discount is accrued over a period of time and is usually referred to by how many consecutive years you have not made an insurance claim. For example, if you have not made a claim to your insurance company for 5 years, you will have 5 years no claims discount. A driver's no claims discount is used together with other 'risk factors' (i.e driver details, where the car is kept) to calculate insurance premiums.
The longer you go without making a claim the more discount you will receive for your clean driving record. Whilst this will generally lead to cheaper annual premiums, insurance is calculated from a number of risk factors with a driver's NCD being just one. If other risk factors change then you may actually end up paying more even with more years no claims discount. For example, if you have 3 years no claims and then move to a high risk area, you're next insurance premium may still be more expensive even with a greater no claims discount.
Drivers with 5+ years NCD typically receive the best discounts from their insurer. Young drivers unfortunately experience years of expensive insurance premiums whilst they build up their no claims discount, but eventually it will become cheaper to insure a vehicle with a record of no claims.
The policies of insurance companies will vary on how they reward customers who don't make a claim. According to the Association of British Insurers (ABI), 5 years no claims discount can discount annual premiums by as much as 60% but this will be dependent heavily on other risk factors too. Make sure you shop around when renewing your insurance and see how much competitors will reward for your clean record. To know how much your no claims discount is worth you will first need to work out the base premium of the policy. All discounts are applied automatically on renewal or will be factored into a quote.
Claiming on your insurance to cover damages caused by a situation you were involved with will affect your NCD.
Claims made to cover damages incurred by a named driver on a policy will also affect your no claims discount. If the named driver is able to accrue discount on the policy then their record will also be affected.
If your car is stolen, damaged by criminal activity, or damaged by bad weather, then it is likely your no claims discount will still be affected as may have to make a claim for 'total loss' or to cover damage caused. If you ever feel you have been wrongly put at fault for a claim and NCD has been affected, you can make a formal complaint to the Financial Ombudsman Service.
Claims that wont affect your NCD is a bit of a grey area and you should read the terms and conditions of your policy first as each insurer will deal with claimants differently. If you have paid to protect your no claims discount then you may have a limited value of claims you can make that won't affect it. If the car is written off then this may not be covered by your protected policy.
If you are not at fault for an accident then you may not loose all your NCD record. Also, if damage is claimed against another party's insurance then your NCD may be protected in some circumstances. If a decision cannot be made on who’s fault an accident was between multiple cars, the cost may be split between insurers and your no claims discount could be affected.
Making a claim may result in you losing some if not all of your NCD. How you lose your NCD will depend on the insurance company's 'step-back' scale and their policies on dealing with claims.
For example, if you have a 8 years no claims discount and make a two claims in a year then your NCD at renewal will be reduced to 3 years. If you make 2 claims in a year it will be reduced to 1. This is just an example and you should read the policy of your insurer so you understand the terms you are contractually obligated to follow.
You have the option on many insurance policies to protect your no claims discount. This will mean you can make a limited value of claims that won't affect your record.
Protection for your no claims discount is an optional extra on many insurance policies. NCD protection lets you make a limited value of claims a year that wont't affect your record. When making this decision consider how much you're set to lose if you are in a position where you have to make a claim. The greater your NCD is the more you have to loose by making a claim and you may save more in the long term if you have protected your discount and are forced to make a claim.
If you make a claim then you may loose all if not some of your discount privileges and your next insurance premium may still cost you more. However, research by Which? shows that NCD protection on certain insurance policies do not always prevent premiums from rising due to a claim. Your gross insurance price may still increase after making a claim and even with your protected no claims discount you could still end up paying more than you have done previously.
You can transfer your no claims discount between insurers. Insurers each have their own no claims policies so don't expect the same terms and conditions or continuity from your old policy with regards to NCD.
You'll be asked by some insurance companies for proof of your no claims record when taking out their policy. This can be provided by your previous insurer in the form of a proof of NCD document.
Some insurance companies wont recognise a no claim record accrued as a named driver on another driver's policy. Plus, if you have been insured as a main driver for an extended period of time then your NCD may have lapsed and will be invalid when you re-insure yourself. Driver uninsured for more than two years may have to forfeit their no claim history.
How much of your discount you lose following a claim will be dependant on how much discount you had built up. If you make a claim in the first 1-3 years you may loose all your insurance and will then have to rebuild you NCD from 0 when you come to renew your insurance policy. Similarly, if you have 10+ years NCD then you are unlikely going to lose all of it from a single claim. How your no claims discount is affected by a claim is wholly dependant on the policy of your insurance company.
This will vary depending on who your insurance company is. Most, if not all, insurers will have a maximum discount available but if other risk factors change then this will affect your premium even if your NCD is maxed out.