No claim bonus on car insurance

Are you getting the best value for your car insurance?

No claim bonus insurance schemes are promoted by insurers to reward safe drivers or those who don't claim on their insurance. But a no claim bonus does not always reduce the cost of your premium.

Here we explain how a no claim bonus works and what to look out for when you buy car insurance.

What is a no claim bonus?

No claim bonus insurance schemes (also called no claim discounts, ratings schemes or ratings levels) typically give you a discount that increases each year you don't claim on your insurance until it reaches the maximum level. This type of discount usually applies to comprehensive car insurance.

How does a no claim bonus work?

When you take out car insurance, your no claim bonus is used to discount your premium. Your insurer will calculate your no claim bonus by looking at:

  • the rating level you held with your previous car insurer
  • your claims history (and the claims of other drivers covered by your policy)
  • the number of years you (and any other covered drivers) have been driving.

If you make certain types of claims on your policy, your no claim bonus might be reduced when you renew your insurance

How are car insurance premiums set?

When calculating your car insurance premium, the insurer usually estimates the likelihood that you will make a claim on your policy. Each insurer may work this out in a different way, but they may consider:

  • the value of your car 
  • where your vehicle is kept overnight and how it is used
  • whether your car is financed
  • the type of car you drive and how old it is
  • your age
  • your claims history.

The insurer could also take into account any no claim bonus you may be entitled to, when calculating your premium.

How claims affect your car insurance premium

At fault or non-recoverable car insurance claims

'At fault' or 'non recoverable' claims are those whose costs the insurer cannot recover from the other driver involved in the accident.

Each insurer has a different definition of what is included under this category. Sometimes an event that you do not believe is your fault could be considered 'at fault' by the insurer if they cannot recover the cost of the claim from the other driver. This type of claim can reduce your no claim bonus and increase your premium.

Not at fault or recoverable car insurance claims

'Not at fault' or 'recoverable' claims are those whose costs the insurer can recover from the other driver. This type of claim usually does not reduce your no claim bonus. However, some insurers can increase your premium after you make this type of claim, depending on factors such as the type of car you drive, your age, and whether the cost of claims your insurer has paid during the year has risen.

Case study: Lachlan's car insurance premium increases despite his no claim bonus

Lachlan sitting in his car

Lachlan's car insurance premium was originally $1,000 per year. Because he hadn't made a claim on his policy in many years, his insurer gave him a 50% no claim bonus, which reduced his premium to $500.

A few months later, Lachlan had a car accident. When he made a claim, the insurer decided the accident was not his fault, so Lachlan kept his 50% no claim bonus.

However, when he received his insurance renewal, Lachlan was surprised that his premium had risen to $600. He asked his insurer about this and was told that, because they were paying a lot of claims involving cars similar to his, they rated Lachlan at a higher risk of making a claim than they did before. As a result, his original premium (before the 50% no claim bonus was applied) had increased to $1,200. After applying his 50% no claim bonus, his premium was $600.

Car insurance checklist

To make sure you understand what your no claim bonus really means, here are some questions to ask your insurer:

  • How is my claims history used to calculate my premium?
  • How much discount do I get from my no claim bonus?
  • What are the different no claim bonus levels/ratings?
  • What types of accidents do you consider my fault?
  • How can I get a higher no claim bonus?
  • How will a claim affect my no claim bonus?
  • Do minimum premiums apply to the policy? (Some insurers will set an amount that will be the lowest possible premium you will pay).

Always shop around and find out what the insurer is really offering you with a no claim bonus. Don't just stick with your current insurer for a no claim bonus, as you could get a better deal elsewhere. Some insurers allow you to carry across your no claim bonus if you move your insurance to another company.

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Last updated: 31 Jan 2019