No Claim Bonus on Car Insurance: How Ratings Really Work
Insurers sell the no claim bonus as a reward for careful drivers. It can be, but it is worth far less than the marketing suggests, and it should never stop you comparing.
A no claim bonus is a discount on your car insurance premium that increases each year you do not make a claim, up to a maximum. It goes by many names: no claims discount, safe driver reward, rating, or rating level. It usually applies to comprehensive cover.
It sounds valuable, and for a driver building a record from scratch it genuinely is. But Moneysmart is blunt about its limits, and understanding them can save you more than the bonus itself.
How no claim bonus ratings work
Insurers generally work out your bonus from three things, according to Moneysmart:
- how long you, and anyone else on the policy, have been driving
- your claims history, including claims by other drivers on your policy
- your rating from your previous car insurer.
Most insurers express this as a rating. Ratings generally start at 6 and fall by one for each year without a claim. A “Rating 1” driver has usually not made a claim for the last five years, and that is usually the maximum.
| Rating | Typical meaning |
|---|---|
| Rating 6 | New to insurance, or a recent claim |
| Rating 5 | One claim-free year |
| Rating 4 | Two claim-free years |
| Rating 3 | Three claim-free years |
| Rating 2 | Four claim-free years |
| Rating 1 | Five or more claim-free years, usually the maximum discount |
The scale and the size of the discount at each step vary between insurers, so treat this as the common pattern rather than a rule.
Why the bonus is worth less than it looks
Moneysmart points to a 2015 ASIC review which found that for most brands, between 90% and 99% of policyholders were on the highest discount rating. When almost everyone has the maximum discount, the discount is effectively built into the price rather than a reward for being unusually careful.
It also warns that insurers may:
- limit how long you receive the bonus
- increase your premium after a minor accident, even if you do not claim
- set a minimum premium, which means you may not get the full discount
- reduce the bonus for certain types of claims.
The result, in Moneysmart’s words, is that you may end up paying roughly the original premium after a few years, and a no claim bonus may be a smaller saving than you could get by shopping around.
What a claim does to your rating
Rules differ between insurers, but in general:
- An at-fault claim will reduce or remove your bonus, which increases your premium.
- A not-at-fault claim can still raise your premium. Moneysmart notes insurers may do this if they cannot recover the claim cost from the other driver.
- Some claims are treated as at fault even though nobody else was involved. Moneysmart gives theft, windscreen damage and hitting an animal as examples of claims some insurers count against you.
Before you lodge a small claim, ask the insurer how it would affect your rating. Moneysmart suggests you might decide not to claim if the damage is minor and paying for it yourself would cost less than the excess and the likely increase in future premiums.
Is no claim bonus protection worth it?
Some insurers let you pay extra to protect your bonus, so that a claim does not reduce your rating. Moneysmart advises reading the small print, for two reasons:
- The cost of the protection can be more than the discount it protects.
- Protection does not stop your premium rising after a claim. It keeps the discount in place, but the underlying premium can still increase.
Protection is most likely to be worth it if you have a high rating, a large discount at stake, and a real chance of a claim, for example because you park on the street in a hail-prone area. Ask the insurer to show you the cost of protection and the discount it protects in dollars, not percentages.
Loyalty is not the same as a bonus
The biggest risk with a no claim bonus is that it keeps you with an insurer who is overcharging you. Moneysmart tells the story of a customer who received a 15% discount for years of loyalty and multiple policies, while being charged 20% more on renewal than a new customer with the same risk profile.
ASIC-commissioned research cited by Moneysmart found that 74% of people who received a renewal notice were quoted a higher premium than the year before, and 67% renewed with the same insurer, many without comparing. Almost one in three people who asked their insurer for a better price got one without reducing their cover.
Your rating generally goes with you: insurers take your previous insurer’s rating into account when they quote. So the bonus is rarely a good reason to stay. Compare at renewal, quote your current rating accurately, and switch if the price for the same cover is better elsewhere.
Getting the most from your rating
- Check your current rating on your policy documents so you can quote it accurately.
- Pay for minor damage yourself when the repair is close to your excess.
- Ask how any claim will affect your rating before you lodge it.
- Compare the cost of bonus protection with the discount it protects.
- Compare quotes at every renewal; the bonus is not a reason to stay.
For more on keeping costs down, see how to compare car insurance, car insurance excess explained and car insurance for P platers, where a clean record builds up fastest.
Frequently asked questions
What is a no claim bonus?
A no claim bonus, also called a no claims discount, safe driver reward or rating, is a discount on your premium that grows each year you do not claim, up to a maximum. It usually applies to comprehensive car insurance.
What does Rating 1 mean?
Rating 1 is usually the best rating. Moneysmart explains that ratings generally start at 6 and drop by one for each claim-free year, so a Rating 1 driver has usually not made a claim in the last five years.
Will my premium go up if I make a not-at-fault claim?
It can. Moneysmart notes insurers may increase your premium after a not-at-fault claim, for example if they cannot recover the costs from the other driver, and some treat claims such as theft, windscreen damage or hitting an animal as at-fault claims.
Is protecting my no claim bonus worth it?
Sometimes. Protection stops a claim reducing your rating, but it does not stop your premium rising after a claim, and Moneysmart warns its cost can be more than the discount it protects. Compare the cost of protection with the discount you would actually lose.
Can I transfer my no claim bonus to a new insurer?
Insurers generally take your rating from your previous insurer into account when they price a new policy, so switching does not usually mean starting again. Check your current rating on your policy documents and give it to the new insurer accurately.
