Should I steer clear of car insurer who does not offer a no claims bonus?
If I have an at-fault claim on my car insurance, they will increase my premium. If I have my no-claims bonus protected, does this mean that my premium will not raise as much?In other words, if my no-claims bonus was not protected would my premium increase be much bigger than if I had it protected?The reason for my query is that there is a new entrant into the insurance market and they maintain that there is no benefit in protecting your no-claims bonus, as in the case of an at-fault claim your premium will go up anyway. They do not bother getting involved with the concept of no-claims bonuses at all.If you have been insured with them and go to another company, they will not give you a no-claims bonus statement per se, simply a statement that you had no claims against them. Which raises another matter. If you have no official no claims bonus statement, will your new insurer say: “Oh, no no-claims bonus statement, so no discount then”?READ MOREOn the Money: the personal finance newsletter from The Irish TimesStarbucks’ Howard Schultz joins billionaire migration to Florida’s sunny tax havenHow the continuing Middle East conflict could hit consumers to the tune of €2,500 per yearRetrofitting will heat your house but freeze your financesA family member got an excellent car-insurance quote from this new insurer but to say I am confused regarding the best advice to give them – to cancel within the 14 days or not – would be an understatement.DH Insurance is one of those things that has a nasty habit of leaving us either disappointed or suspicious. Every year, there are reports of people facing significant increases in the cost of cover despite ongoing promises from the sector that reforms of the market – particularly the size of awards and scale of legal costs – will help cut costs.So when you get a quote that seems almost too good to be true, our first instinct is to ask ourselves “why”? There’s nothing wrong with that. Consumers who fail to stay alert are the ones who tend to pay a price in terms of unexpected gaps in cover – especially in a world where insurers regularly change their terms and conditions, generally in a way that reduces their exposure.But I have to say I had not come across any company in the Irish motor insurance market that simply refused to engage with the concept of the no-claims bonus, a deduction in premium for each year that you drive claim free.And I thought it was obligatory for an insurer to issue a statement of no-claims bonus to each customer as their renewal data approaches to facilitate the customer shopping around for the best cover and quote available.Apparently not. Hazel Rock, who is head of insurance service at Brokers Ireland – which represents Ireland’s insurance brokers – tells me that insurers are not legally obliged to operate a no-claims bonus system.“No-claims bonuses are a long-established market feature used by most motor insurers in Ireland, but they form part of each insurer’s commercial underwriting and pricing structure rather than a regulatory requirement,” she says.Clearly, if you have a claim where you are at fault, you can expect your premium to rise. But it is only one of the factors that will affect your updated premium.A claim of any sort will affect your “risk profile” with the size of any claim also being taken into account. But other factors, such as general insurance market conditions, will also play a part. If you have a no-claims bonus and make a claim, it makes sense that the bonus will be affected: it is, after all, a deduction in premium to reward careful driving which means the insurer is not incurring costs on your behalf.No-claims bonus protection – for which most insurers charge additional premium – can be confusing. In fairness, it does what it says on the tin: it protects your no-claims bonus. Each insurer will have different rules around this. Some will allow one claim up to a certain size without affecting your bonus at all; others will cut your bonus after a claim but leave some in place.But it is not the only factor affecting your premium. So while having a no-claims bonus should mean a lower premium than if you did not have one, it does not mean your premium will not rise.“This is an area that often causes confusion,” says Brokers Ireland’s Rock, who notes that the no-claims bonus protection “applies to the bonus level, not necessarily to the overall premium calculation”.“Insurers may still adjust premiums following a claim because claims history remains a rating factor,” she says. “In practice, protection can still provide value by preventing a larger increase in premium that might arise if the bonus itself were reduced, but outcomes differ between insurers.”So when this insurer offering an “excellent quote” says there is no benefit in protecting your no-claims bonus because your premium will go up anyway in the case of an at-fault claim, they are both correct and incorrect at the same time.Yes, your quote will almost certainly go up, regardless of your insurer, but the increase will likely be less if you have a no-claims bonus.And what happens if you, or this family member, wants to move insurer down the line? Will this letter stating that you had no claims while covered by them be accepted by other companies.In many cases, yes, according to Rock. “Brokers regularly use claims history or confirmation-of-no-claims letters when arranging cover for a client with a new insurer.”Most insurers will consider documented evidence showing the period you were insured with the company and confirmation of claims experience, she says. “That said, acceptance remains at the discretion of the receiving insurer, and documentation requirements may vary.”And insurers are certainly not obliged to respect such a letter or quote on its basis.In practice, she says, insurers commonly recognise verified claims history where sufficient detail is provided. As you would expect from someone representing brokers, she says an insurer is even more likely to accept a claims record when it can be validated by a broker.She’s not wrong in this. Clearly, third-party confirmation would be reassuring to an insurer when assessing a driver record.So where does that leave your family member?As of now, I am assuming the quote from this insurer is the best available to them in the market. Forget the no-claims bonus for a minute. Comparing the level of cover provided at the cost, does the policy offer the protection the motorist needs?Certainly, if the company does not operate a no-claims bonus system and your family member has reason to make a claim, the policyholder can expect the premium to rise by more than it would if they were with a different insurer offering a no-claims discount, but given the “excellent” nature of the current quote, they might still be competitive even then.The problem is that you will not know until it arises. I’m not sure if the company is prepared to give any guidance as to how it adjusts premiums following claims, though you could certainly ask.A second problem is that if your family member does have cause to make a claim, they will generally find it difficult to move insurer in the following few years. Insurers are more reluctant to take on customers with recent claims.So, there does not appear to be any issue with the lack of a no-claims bonus system or formal statement of no-claims bonus per se, although some insurers might be less willing to accommodate a customer in that position. The crunch, to play with words, will come if your family member does need to make a claim. In the absence of some clarity on how such claims are treated by the insurer in setting future premiums, they are taking a step in the dark. Having said that, transparency would not be something associated with any insurer in how they set premiums.Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or by email to dominic.coyle@irishtimes.com with a contact phone number. This column is a reader service and is not intended to replace professional advice
