A significant no claims bonus is generally the most effective way to bag yourself a cheap car insurance policy, so it can be worth your while getting to know the ins and outs of how they work.

What is a No Claims Bonus (NCB)?

A no claims bonus is given to you by your insurer for each year that you have a car insurance policy, but do not make a claim. Having an NCB will give you a discount on the cost of renewing your policy (or sometimes when taking out a new policy with a different insurer).

NCB accumulate – so the more years you go without claiming, the more you can save on your next insurance policy. Also, it’s worth noting that some companies operate accelerated policies where you can earn a 1-year NCB in just 10 months.

How long is your NCB valid for?

If you stop driving, your NCB will usually only be valid for a period of two years. This means that if you don’t have your own policy for two years, you’ll have to build up your NCB from zero when you next take out an insurance policy.

What happens to your NCB if you make a claim?

Generally, you will lose two years’ worth of NCB if you make a claim on your car insurance. However, this is where things become a bit murky. Different insurers have limits to how many years of NCBs they’ll ‘consider’.

So for example, if you have 7 years worth of NCBs, but your insurer only considers a maximum of 5 years. If you were to make a claim, which generally reduces your NCB by 2 years, you’ll be left with 3 years NCB (the 5 years considered by your insurer, minus the 2 you’d lose for making a claim).

Some insurers will preserve your NCB if you’re in an accident and it is agreed that it wasn’t your fault. In cases where the fault cannot be agreed on, the NCB of both drivers could be affected.

How do insurers decide how to reduce your NCB?

This is where shopping around and doing your research is essential. As there is no industry standard for how NCBs are reduced, each insurer has their own policy, so you should consider how your insurer will reduce your NCB should you need to make a claim.

Some insurers won’t disclose their NCB policies, and others are vague about how they reduce NCBs. For example, AA Insurance Services merely state that in the event of a claim, your NCB will be ‘reduced at renewal at accordance with the insurer’s ‘step back’ scale at the time of renewal’ – so how much is that exactly?

Other insurers have more specific policies. Admiral, for example, state that ‘this is a No Claims Bonus and not a no blame bonus. If a claim occurs which is not your fault and we have to make a payment, your No Claims Bonus will be reduced unless we can get back all that we paid from those responsible.’ In other words, even if you aren’t to blame, your NCB will be reduced unless they can get the money back from the other side.

Is it worth protecting your NCB?

Given how much you can save on the renewal of your car insurance policy when you have built up a substantial NCB, it’s worth considering if it would be beneficial to protect your NCB.

Generally speaking, it’s only worth protecting up until a certain point, after which it isn’t really worthwhile as you’ll be paying more to protect your NCB than you’re saving by having it in the first place.

Having said this, each situation is different, and this is based on the assumption that your insurer will only reduce your NCB by two years in the event of a claim. But given that most insurers now will not recognise your NCB past a certain point (usually 5 years), you’ll be knocked back down to 3 years regardless of how many years of NCB you’ve actually accrued.

How can I get proof of my NCB?

Always remember that your NCB can be taken with you, so if you do find a better deal elsewhere, you can keep your NCB as long as you can prove it.

Your current insurer may provide this to you, either in a letter they send just before your car insurance is up for renewal, or with the cancellation documents they send.

Otherwise, you’ll have to chase them up either by phone, post or via their website, and request that they send you proof of your NCB.