We look into how making a car or home insurance claim can send premiums sky-high, and what you can do to cut costs
Having to make an insurance claim usually means something bad has happened – perhaps a car accident or a home break-in. We rely on our insurance at times like these but, to add insult to, sometimes literal, injury, making a claim can see subsequent renewal premiums shoot up by hundreds of pounds. Sometimes you can even be penalised for an accident that wasn’t your fault.
The cost of claiming
Insurers are notoriously cagey about revealing details of their underwriting criteria – how your specific set of circumstances affects your risk, and thus your quote. This makes it tricky to predict how claims might impact your premium. It depends on the insurer, the nature of the incident, and how likely an insurer thinks it is that you will make the same type of claim again. Whether you have protected your no-claims discount (NCD) or ‘bonus’ can also make a big difference.
To illustrate the impact of a relatively minor incident, we ran several car insurance searches on a comparison site, keeping all details the same except for the claims history. The quotes that Sarah, our fictional driver, received may not precisely replicate those a real customer would be offered by going directly to insurers, but they paint a broad picture of how a claim may affect premiums (see box below).
Sarah, a 40-year-old Ford Fiesta driver with nine claim-free years, was initially quoted an average of £600 across the top 10 premiums listed. When, in another scenario, Sarah admitted that she had recently run into another car, causing a claim for £1,000 worth of damage and reducing her no-claims years from nine to three, her average quote was nearly 50% higher at £891.
Whose fault is it?
When you are responsible for an incident, as Sarah was in the latter scenario, you would expect premiums to increase. But when we then input that Sarah had a recent accident that she didn’t cause, her average quote went up by £235 (to £835). In this case, we said that although the accident was not her fault, a claim was made against her insurance policy (common when the other driver can’t be identified).
This is down to how most car insurers define fault (the fault/non-fault issue doesn’t exist for home insurance). Being at ‘fault’ doesn’t necessarily mean you caused an incident; usually, it’s to do with whether or not your insurer has to pay. Say a careless driver scraped your parked car. Unless they could be traced and their insurer made to pay, your insurance claim would likely be a ‘fault’ claim.
Fault claims, unlike non-fault claims where your insurer doesn’t pay out, usually reduce your NCD and have a bigger impact on premiums. For example, we spoke to one driver whose car was stolen from outside her London home. Her insurance on a new car would have rocketed from around £500 to more than £2,000 – a level which she could no longer afford.
Premium hikes for non-fault claims
Bafflingly, your premium can spike even for non-fault claims. Following a non-fault claim, Sarah’s average quote was £683 – 14% more than the no-claim scenario.
We asked the Association of British Insurers (ABI) how insurers can justify raising premiums following non-fault claims. It said: “Insurers analyse millions of claims, and there may be statistical evidence that people who were involved in an accident in the past are more likely to make a claim in the future, regardless of whether they are at fault. Being ‘not at fault’ is not a reflection of your level of risk.”
How no-claims discounts work
For every claim-free year you own car or home insurance, up to a maximum, you receive a discount on your premium. The maximum number of no-claims years varies by insurer, as does the percentage discount available.
Few insurers publicise their typical discounts, though the ABI says that NCDs for car insurance can range from 30% for one claim-free year to around 60% for five-plus years. Home insurance NCDs are likely to be similar.
NCDs won’t stop underlying premiums rising altogether. However, in theory, a decent NCD can reduce premiums by hundreds of pounds. NCDs can usually be transferred to another provider if you switch.
Following a fault claim, insurers usually reduce your no-claims years, and thus your NCD. This varies by insurer – we’ve shown the policies of seven leading car insurers – but you can typically expect to see five-plus years of NCD cut to three following one claim in an insurance period. A second claim in the same period might see it slashed to a year.
The impact of claims on motor insurance
Below, we show the average premium quoted for a driver who had made no claims in the previous nine years, as well as average quotes for the same driver who had experienced an accident causing £1,000 of damage within the last year
|Claim details||Was our NCD protected?||NCD at renewal||Average quote*||% Increase compared to no claims|
|No claims||N/A||9 years||£600||N/A|
|We were to blame and our insurer paid||No||3 years||£891||49%|
|Other party to blame but our insurer paid||No||3 years||£835||39%|
|We were to blame and our insurer paid||Yes||9 years||£739||23%|
|Other party to blame but our insurer paid||Yes||9 years||£683||14%|
|Non-fault claim (other party paid)||N/A||9 years||£683||14%|
*Based on top10 results from a car insurance search on a leading price comparison site for a 40-year-old Ford Fiesta driver in January 2019, excluding telematics policies
Should you protect your NCD?
No-claims discount protection (NCDP) shields your NCD from the impact of a claim – buying this add-on increased Sarah’s initial quotes by between £15 and £95, depending on the insurer. None of the leading insurers we looked at cut your NCD following one NCDP-protected claim.
As our average quotes table shows, protecting your NCD can be well worth it. In our fault-claim scenario with NCDP in place, we were quoted £739 on average – £152 less than without this protection. It is not a panacea though. Following two claims in an insurance period (a year), NCDP only protects your discount fully with three of the seven insurers we looked at, while only LV= and More Than permit any number of claims without cutting or removing your NCD.
How to keep renewal fees down after a claim
When shopping around, it can be tempting not to mention previous incidents, but think twice. If your insurer later finds out, it could increase your premium, reject a claim or even invalidate your policy. Most insurers have access to a central database of incidents, known as the Claims and Underwriting Exchange (CUE). If you have claimed with a previous insurer, or even if you’ve reported an incident that you didn’t claim on (perhaps because the claim was worth less than your excess), it’s likely to be on CUE.
Keeping costs down
There are legitimate tactics to minimise premiums:
Shop around. Claims that make a big difference to some insurers may not matter much to others. Use more than one price comparison site as deals may vary, and check insurers that are not listed on comparison sites, such as Aviva and Direct Line.
Consider protecting your NCD, particularly if you’ve built up several years. You’ll need to weigh up potential benefits against upfront costs.
Check that claim details are accurately listed by an insurer – nuances can matter. For example, claims involving another driver are usually listed as ‘joint liability’ until they are settled. If the claim is resolved in your favour, but your insurer hasn’t updated its records when you renew, this could affect your quote (see David’s story below). Leading insurers told us they would reinstate lost NCD and refund any difference in premium if a claim was confirmed as non-fault following renewal, but you may be out of pocket in the meantime.
Some insurers are more flexible about certain ‘fault’ claims. Direct Line, for example, recently introduced a policy of not reducing NCDs following car insurance claims where you are not to blame, such as for theft, pothole damage or if hit while parked. It says: “By continuing to evolve our product by making insurance easier and better, we hope that more customers will want to stay insured with us and we will gain more new customers.”
Admiral told us that, since December 2018, it too will allow someone to retain their no-claims bonus in certain circumstances, regardless of whether it ultimately has to pay out. This is on a case-by-case basis depending on customers’ initial discussions with claims handlers, but would typically apply if a customer’s car was hit from the rear or while parked.
“An incorrectly recorded claim doubled my renewal quote”
David Gosling, from London, considered himself lucky to escape without injury when a lorry driver hit his car, which was stationary in traffic. The slow speed of impact prevented serious consequences, but the collision still made a hole in the driver’s door, bent back the front wing and left the car not roadworthy.
Fortunately, the lorry driver admitted responsibility, and his insurer paid fully for repairs.
David’s experience demonstrates how a fault versus non-fault claim can affect renewal costs. Although David’s insurer confirmed the other party had paid in full, making David’s a non-fault claim, his renewal notice still listed the claim as joint liability. Surprised, David called his insurer – it quickly conceded its error and nearly halved his renewal quote from £832 to £420.
“Shopping around following a claim saved us £440”
Kate and Peter (pictured), from Berkshire, were shocked to get home from holiday last year to find burglars had broken in through their patio doors, leaving the area strewn with glass, and the burglar alarm unit destroyed. Fortunately, the couple had hidden most of their valuables before going away, so the burglars only got away with a couple of pieces of jewellery. The insurance claim totalled around £1,150.
Kate and Peter were taken aback when they got their renewal quote – it had more than doubled from £368 to £780.
Kate says: “We couldn’t understand why our renewal premium cost so much – I thought the whole point of insurance was to spread risk so that people who have to claim aren’t unduly punished. Luckily, by shopping around we found a good-quality policy for just £340.”
How a fault claim affects NO-CLAIMS DISCOUNTS
|NCD years at outset||Admiral*||Aviva||Axa||Churchill||Direct Line**||More Than||LV=|
|Unprotected no-claims discount - one fault claim in insurance period|
|years||3 years||3 years||4 years||3 years||3 years||3 years||4 years|
|5 years||3 years||3 years||3 years||3 years||3 years||3 years||3 years|
|3 years||1 year||1 year||1 year||1 year||1 year||1 year||1 year|
|Unprotected no-claims discount - two fault claims in insurance period|
|9 years||1 year||0 years||2 years||1 year||1 year||1 year||2 years|
|5 years||1 year||0 years||1 year||1 year||1 year||1 year||1 year|
|3 years||0 years||0 years||0 years||0 years||0 years||0 years||0 years|
|Protected no-claims discount - two fault claims in insurance period***|
|9 years||9 years||3 years||4 years||3 years||3 years||9 years||9 years|
|5 years||5 years||3 years||3 years||3 years||3 years||5 years||5 years|
|3 years||N/A****||1 year||1 year||N/A****||N/A***||3 years||N/A****|
Notes: Insurers typically don’t reduce your NCD in certain, specific circumstances, including if you’re hit by an uninsured, identified driver or for windscreen claims. An insurance period is the year from the day you take out an insurance policy *Based on ‘protected’ rather than ‘guaranteed’ NCD. Admiral may not reduce NCD for some incidents where you were not to blame, on a case- by-case basis. **Direct Line does not reduce NCD years for most incidents where you were not to blame. ***If NCD is protected, one fault claim does not reduce NCD years with any insurer. ****NDCP not available with fewer than four years’ no claims
CERI STANAWAY is a personal finance/consumer rights journalist and former acting editor of Which? Money magazine