No-Claims Discount: How It Builds and Transfers
A no-claims discount reduces the premium by a percentage that increases with each claim-free year, and it is one of the largest single factors in motor insurance pricing.
How it accrues
One year is added for each policy year completed without a fault claim.
Most insurers cap the discount after around five to nine years, after which additional years add nothing to the percentage though they may still be recorded.
It attaches to the policyholder rather than the vehicle, and it can generally only be used on one policy at a time.
Named drivers do not usually build their own discount, which is why a young driver insured as a named driver on a parent's policy accrues nothing in their own name. Some insurers offer named driver discounts to address this, and they are worth asking about.
What a claim costs
A fault claim typically reduces the discount by two years' worth rather than resetting it entirely, though the scale varies by insurer.
The underlying premium also rises because a claim is now on your record, and that effect persists for around five years regardless of the discount.
Non-fault claims where the other insurer pays in full should not reduce it, and they are still recorded and can affect pricing.
Protecting it
Protection prevents the discount being reduced after a defined number of claims, for an additional premium.
It protects the percentage, not the underlying price. A protected discount applied to a higher base premium can still mean paying more after a claim, which surprises people.
Whether it is worth buying depends on the size of your discount. At the maximum level it usually is; in the early years it usually is not.
Transferring it
Insurers accept proof from a previous insurer, usually a renewal notice or a letter stating the years earned.
It must generally be used within a period after the previous policy ended — commonly two years — after which it lapses.
This catches people who stop driving for a while. If you expect a gap, ask the insurer to confirm the deadline in writing.
Practical points
Keep the proof document when you switch, since the new insurer will ask for it and may cancel cover if it is not provided.
Consider whether claiming is worthwhile for damage close to the excess, since the claim costs the discount and the surcharge as well as the excess.
Discounts on other policies — home, van — are separate and do not transfer between types in most cases.
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