From 1st August 2016 insurers and brokers will be required to provide prescribed information on the cost and operation of NCD Protection when offering private motor insurance products to customers. This is when the Competitions & Markets Authority Private Motor Insurance Order in respect of No Claim Discount (NCD) Protection comes into force.

Isn't it easy to avoid the accident?

It makes sense, as there is no uniformity to how NCD Protection operates. Many insurers will allow 2 prejudicial claims in a 5 year period, with NCD being ‘stepped back’ if a third claim occurs. Others allow 2 claims in a 3 year period (which obviously affords better protection for the policyholder). There are other models. In fact some insurers operate different models on different products in the UK market.

Insurers also apply NCD ‘stepback’ in different ways. This is well known and appreciated.

The expected norm is that claims covered by protection will not affect NCD ‘stepback’, but this is not always the case. Some insurers will apply ‘stepback’ in respect of all incurred prejudicial claims when NCD Protection is exceeded.

Best to illustrate this by example. Where an insurer allows 2 claims in any 5 year period, with NCD being ‘stepped back’ only where a third and subsequent claims occur, the following might be expected:
1st claim – no stepback
2nd claim – no stepback
3rd claim – NCD stepped back by 2 years

However some insurers will, in the event of that 3rd claim occurring, stepback the NCD as though protection had never applied in the first place, i.e.
1st claim – no stepback
2nd claim – no stepback
3rd claim – NCD stepped back by 2 + 2 + 2 years

A further complication exists in relation to consumers who have suffered a recent prejudicial claim. It is often the case that insurers, when considering whether NCD ‘stepback’ applies, will not factor in claims incurred prior to inception of their policy.

I think that there are a couple of issues worthy of note in relation to this:

  • Where an insurer accepts a new business proposal from this consumer, is it fair that the same NCD Protection rules and premium loading apply as to an existing policyholder? After all, on a like for like basis, the new policyholder is getting a superior level of protection.
  • In circumstances where the consumer’s broker is able to offer a comparable alternative quote including NCD Protection, is the broker doing their customer a disservice by advising renewal with the existing insurer?

Some food for thought for insurers and brokers.

First published on LinkedIn 15th May 2016