Insurers promote a no claim bonus on car insurance to reward safe drivers and those who don't claim on their insurance.
A no claim bonus (also called a no claims discount, safe driver reward, no claim bonus rating scheme, or rating level) typically gives you a discount on your car insurance.
The discount increases each year if you don't claim, up to a maximum number of years.
This sounds like a big saving. But a no claim bonus doesn't always reduce the cost of your insurance. It may also be an ‘every child wins a prize’ marketing situation, with a 2015 ASIC review finding that that for most brands the majority of policyholders (between 90% and 99%) are on the highest discount rating.
How your no claim bonus is calculated
A no claim bonus usually applies to comprehensive car insurance.
Generally, insurers calculate your bonus by looking at:
- how long you (and any other drivers on your policy) have been driving
- your claims history, including any claims by other drivers on your policy
- your rating from your previous car insurer
To find your rating, check your current car insurance policy.
Generally, ratings start at 6 and reduce by one for each year you don't claim. For example, 'Rating 1' drivers haven't made a claim for the last five years (this is usually the maximum number).
How the no claim bonus affects the cost of your insurance
The no claim bonus and the way insurers apply it can differ. For example, they may:
- limit how long you get the bonus for
- increase your premium if you have a minor accident (even if you don't make a claim)
- set a minimum premium that you must pay (which may mean you don't get the full discount)
- reduce your bonus if you make certain claims
This means that you may end up paying roughly the original premium after a few years.
A no claim bonus might also be a smaller discount than you could receive by shopping around and comparing costs between insurers.
Jessie’s loyalty costs her more
Jessie has had home, contents and comprehensive car insurance with Insurer ABC for 20 years. Insurer ABC has promised Jessie a discount of 15% off her premium for the number of years she has held a policy and the number of policies held. However, Insurer ABC is also charging Jessie 20% more on insurance renewal than it would for a new customer with the same risk profile.
How claiming affects your no claim bonus
Insurers have different terms and conditions about how claiming affects your bonus.
Generally, if you're at fault and you make a claim, you'll either lose your bonus or it will be reduced. This means the cost of your insurance will go up.
Even if you're not at fault, insurers may increase your premium after you make a claim. They may do this based on:
- not being able to recover the costs for your claim from the other driver
- the type of accident — for example, theft, windscreen damage, or hitting an animal may be considered 'at fault' claims
Paying for no claim bonus protection
Some insurance companies offer no claim bonus protection. This means you pay extra so that your bonus is not affected when you make a claim.
If you decide to pay for this protection, read the small print in the policy. The cost of the protection might be higher than your no claims bonus discount. And it doesn't stop your premium going up after a claim - it just keeps the discount in place.
It pays to compare car insurance
Don't stay with your current insurer just for your no claim bonus or rating level. You might get a better deal elsewhere.
There are plenty of insurers in Australia, so put aside some time to compare the cost and understand what is (and is not) covered by different policies. See choosing car insurance for what to look for.