You’ve just earned your fifth year of NCD (No Claims Discount), and your insurer/broker mentions that you are now entitled to add Protected NCD to your motor policy for a small increase in the premium. But “don’t worry, you won’t lose your NCD of 5 years if you have an accident” they tell you. So you ask how much and then pay the premium.

But low-and-behold, some idiot rams their car into yours and drives off with no-one to bear witness to the incident. So your insurer pays your claim (your car is repaired) and you pay the policy excess, and you think to yourself “Phew… at least my premium won’t go up, because I have Protected NCD”.

As your renewal date approaches, you barely remember the discussion you had last year when you added Protected NCD to your policy…and then your renewal letter drops through your door. To your disbelief, your premium has increased by a noticeable amount.

You immediately get on the phone to your insurer/broker, and demand an explanation.

“Why has my premium gone up?” you ask

“You had a claim during the policy period” the advisor responds politely

“But I paid for Protected NCD!” you exclaim.

“Yes, and your NCD entitlement of 5 years has remained unaffected” the advisor informs you (as if reading from a script)

“So why has my premium gone up?!” you ask again

“Because you had a claim during the policy period” the advisor tells you, with growing frustration at having to repeat him/herself

I bet that many of you reading this have had this, or a similar, cyclical discussion with your motor insurance provider, but how many of you ended that call satisfied that you understand why your premium went up (not necessarily accepting the increase, but actually understanding why it happened)?

Here follows the detailed response you should be given, but will never get.

“I’m sorry. It appears that we omitted to tell you, when you paid the extra premium last year, that any prejudicial claim made against the policy would still result in an increased premium at renewal, albeit a lower increase when compared to the increase that would apply had you not opted for this policy benefit.

“A prejudicial claim is a claim where is has not be possible for your insurer to recover their costs from the party/person who is proved to be responsible/liable for causing the incident/loss – such as a Theft, a hit-and-run incident or an incident where you are proven to be at fault.

“Also, I can’t see if we advised you, before you made the decision to pay the extra premium, that this insurer imposes restrictions that mean that no more than [X] prejudicial claims can be made against this policy within a [Y] year period, before exposing your 5-year NCD entitlement to reduction in the event of a 3rd prejudicial claim and, potentially, a complete removal of you NCD entitlement in the event of a fourth prejudicial claim being made within [Z] months of the first.

“As for why your premium has increased, I can confirm that the methodology behind premium calculation varies from Insurer to Insurer, but traditional underwriting methods would suggest that all adverse-feature loadings are added to the premium first (claims, convictions and other adverse risk factors), with the positive-feature discounts being deducted last. Historically, No Claims Discount was the last discount to be deducted, before the addition of the Protected NCD loading was applied (followed by Insurance Premium Tax and any administration fees to be applied). However, with premium calculation methodology now being controlled by computer algorithms (rather than human underwriters and actuaries) calculating premium variations on thousands of risks per day and many 10’s of rating factors per risk, it is no longer within our ability to identify exactly at what stage of the calculation process the claim loading has impacted the premium.

“All we can say is that, had you not included the Protected NCD, your claim would have reduced your NCD entitlement from 5 years to 3 [or 2, depending on the insurer[, and increased your premium by approximately 20-25% more than the current increase.

Bit of a mouthful, right?

Prejudicial claims are an adverse risk feature, and attract adverse pricing; just the same as convictions, vehicle modifications or parking a vehicle on the street in a high crime area. Ever wondered why no-one down the pub ever complains about their premium increasing, using the “but I paid extra for Protected NCD!” argument after they’ve just lowered their vehicle and fitted a sports exhaust?

The point is that a Protected NCD is only protecting the years NCD earned from being reduced by a prejudicial claim or two during a limited period of time – it is not a Protected Premium.

Hopefully, this explains why your Protected NCD premium may increase after your suffer a prejudicial claim.

But if not, please speak with your insurer/broker before you add this benefit to your motor insurance policy.
1. Ask what the rules are (how many claims in how long a period – every insurer seems to be different in this respect, and I have seen one or two offer 1 claim in 12 months, with no option to reinstate Protection for another 12 months after that!)
2. Ask for details of the NCD Step-Back scale (this will show you the loss of discount [in %] you would experience if you were to make a claim but didn’t have the NCD Protection)
3. Ask how much extra you are paying for Protected NCD (if the period and number of claims allowed is acceptable, sometimes the extra premium is irrelevant; but if the period and number of claims is too restrictive, or the extra premium appears too high, maybe you should seek alternative quotes), and finally
4. If you still have doubts, don’t buy any insurance product through an online quote system – always speak to a human being, who actually knows what they are talking about (it doesn’t have to be me) and write their name down, in case you need to complain at a later date.