Knock For Knock

Knock for knock is an insurance industry term that refers to an agreement between insurance companies about how to handle payouts to policy holders where both companies are involved on behalf of their respective clients. It usually applies in the case of a motor vehicle accident, and specifies that each company will simply pay the repair costs for their own client, no matter who may have been responsible for the accident, and irrespective of the relative value of the damage to each client's vehicle.

The aim of a knock for knock agreement is to expedite the process of paying out insurance claims. Rather than bear the administrative costs of counter-claiming, where responsibility has to be determined and proven, in the long-run this approach suits the insurance companies, who have calculated that it is more expensive to repeatedly bear these costs than it is to settle directly. It is based on the premise that over time, the short and long ends of the stick balance out. So even though a company might not be liable for any costs on an accident now, as their client was not responsible, the next time they may be liable for all costs, in a case where their client is responsible. Given that it is all likely to equal out, the only difference then becomes the admin overheads, and this approach is designed to eliminate these.

The benefit to the consumer, at least theoretically, is that premium increases are kept to a minimum as these admin costs are avoided - which of course means that they are not passed on to policy holders.

However, many insurance companies feel that the knock for knock agreement is an outdated concept, and have stopped entering into such arrangements. One of the rationales is that it invalidates no-claim-bonuses, because when an accident is not your fault, and your insurer pays out on a knock for knock basis, this counts as a claim against your policy - whereas if the agreement is not in place, the other person's insurance company would pay out, and you would retain your no-claim status with your own insurer. Another reason is that if your own insurer pays, you are liable for an excess amount, which would not apply if the other person's insurer pays. It would seem in the light of these arguments that the trend is likely to start moving in the direction of rendering these agreements obsolete.