No Claim Bonus

A no claim bonus is effectively a reward that an insurance company gives to policy holders who do not claim on their insurance policies for a specified period of time. The exact parameters, requirements, time periods and rewards vary from insurance company to insurance company. These bonuses are part of the benefits that insurers market to prospective clients and many people seek out specific bonus features as part of what they look for when sourcing an insurance company to tend to their insurance needs.

The way a no claim bonus commonly works is that in return for not having to submit a claim against your insurance policy for a given period (typically a year), you receive a discount on future premiums. This discount begins to apply from the anniversary of the policy. It has become a much valued component of many people's personal insurance strategies, and they will usually try to ensure the preservation of their no claim bonus as much as possible. Usually this involves not claiming for incidents or losses that are largely covered by the excess amount that clients are liable for. It makes more sense for people to add in a little extra to the excess amount in order to foot the bill themselves, rather than to jeopardise their no claim bonuses in exchange for a smaller saving on the costs of recouping losses in the short term. This is also because once a claim is made, not only is the no claim bonus forfeited, but insurance premiums and excesses usually increase in the next calendar year as a result of the claim.

This two pronged carrot and stick approach by the insurance companies is also clearly thus a deliberate attempt on the part of insurance industry to reduce the number of spurious or dubious claims. These types of claims put pressure on insurance company margins, and are in a large measure responsible for the trend of ever increasing insurance premiums over time.

Often the longer the period of claim-free policy holding, the bigger the reductions in premiums. The maximum no claim period is most often set at 5 years, and at this level premiums can be discounted up to around 75%, which is a significant saving on insurance costs. This makes a no claim bonus an very sensible thing to pursue.