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Why doesn’t protecting my no claims discount stop premiums rising?
Your no claims discount can help you cut the cost of your car insurance significantly. But protecting your no claims doesn’t necessarily stop your premiums from increasing at renewal.
Here, we find out how your no claims discount works and why you could still pay more for your insurance in the future.
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How does a no claims discount work?
For every year you drive without making a claim, you earn a no claims discount (NCD), it’s also known as a no claims bonus (NCB).
The discount is expressed as a percentage which is then taken off your car insurance premium. The more years of no claims that you have, the higher the percentage discount.
The value of no claims discounts varies between insurers, but it typically ranges from 30% for one year of no claims, up to 75% if you have five or more years of NCD.
A no claims discount doesn't mean your car insurance premium won't rise
A no claims discount is a percentage discount. That discount (a %) is applied to the premium you're quoted for cover. If your starting premium (that is, what you'd pay without any NCD) rises one year due to factors such as inflation, you will still get the % discount, but your resulting premium will still rise.
For example, assume your starting premium last year would have been £500 but you had a 20% NCD so you paid £400 (£500 less the 20% discount of £100). If this year your NCD actually rises (say to 25%) but your insurer quotes you a higher starting rate at renewal of £600 then despite the NCD your premium will still rise to £450 (£600 less the 25% discount of £150). So in this case despite your NCD rising from 20% to 25%, the premium you have to pay this year still goes up, by £50.
How do claims affect my no claims discount?
If you make a claim on your car insurance, you won’t earn a no claims for that year.
If your claim is classed as an ‘at fault’ incident, you could also lose some of your NCD, usually two years’ worth. For example, if you have five years of NCD and hit another car, your insurer may reduce your NCD by two years so that you only have three years’ worth.
If an accident isn’t your fault, it’s called a non-fault claim. In these instances, your NCD should not be affected so you won’t lose any of the NCD you’ve built up.
When a non-fault claim becomes an at fault claim
Sometimes, a non-fault claim could be recorded as an at fault claim if your insurer cannot recover their costs from the other driver’s insurance provider. For instance, if the other driver failed to stop and leave their details.
If you made a claim in these circumstances, your NCD will usually be affected as well. This might seem unfair, but from an insurer’s perspective, you’ve still made a claim and they’ve had to cover costs.
Does protecting my no claims discount stop premiums rising?
Protecting your no claims discount means you pay to keep your NCD intact even if you make an at fault claim. Bear in mind that insurers will limit the number of claims you can make so NCD protection isn’t an opportunity to make numerous claims.
It means that instead of losing up to two years’ worth of NCD after an at fault accident, you’ll keep what you’ve already earned. However, this doesn’t stop your actual car insurance premium from rising.
Why doesn’t protecting my no claims stop car insurance rising?
Protecting your NCD only protects the discount you’ve built up. An accident (regardless of fault) will almost always increase the base level car insurance premium because you’ll be considered a higher insurance risk.
Here’s an example of how your premium might look before and after an accident:
Before an accident and making a claim
- Your base premium is £1,500.
- You have five years of NCD which gives you a 65% reduction.
- You paid £525 (£1,500 minus 65%) for car insurance before you had a car accident.
After an accident and making a claim
- At renewal, your base premium increases to £2,000 because your risk profile has increased since having a car accident.
- Your NCD is protected so your discount remains at 65%.
- Your renewal premium is £700 because even though your NCD is the same, the base premium has increased.
Will my car insurance increase if I protect my no claims?
Generally, yes, your car insurance premium will increase after making a claim. Remember, protecting your NCD only protects the value of the discount, your insurer will consider a whole range of other factors to work out your base premium.
What affects my car insurance premium?
Premiums are fundamentally all about calculating risk and what the chances of you making a claim are. To help them work that out, insurers will consider:
- The car you drive – expensive and powerful cars cost more to insure.
- Your age – young drivers under 25-years-old are statistically more likely to be involved in an accident which increases their premiums.
- Where you live
- Your occupation – premiums can be higher for drivers living in built-up areas or areas with higher-than-average crime rates.
- Where you live
- Your occupation – some jobs are associated with higher claim rates and riskier driving profiles.
- Your claims history – a claim made in the last five years can increase what you pay.
For more information, take a look at our guide that explores what factors affect your car insurance premium.
Is it worth paying to protect my no claims?
Protecting your no claims discount is an optional extra you’ll need to pay for. Prices vary between insurers, but it typically ranges between £50 and £75. For many drivers, this is a small price to pay compared to the potential cost of losing a hard-earned NCD.
If you’re not sure whether protecting your NCD is the right choice for you, consider the current discount you get and how much of an impact losing this might have on your premium. Broadly, the more years of no claims you have, the greater the impact of losing your NCD.
To help you weigh up the pros and cons of protecting your NCD, we’ve put together a comprehensive guide to no claims discounts. Alternatively, you can start a quote and compare policies or find out more about getting great value car cover.
You may also want to read our related article, Can I share my no claims bonus?