When misfortune rains on motorists, no claim

Most motorists know they can often drive down the cost of their car insurance by scouring the market for the most competitive deal. But all that rigour will go out of the window if, once you've found a policy, you decide not to call on it in your hour of need.

Most motorists know they can often drive down the cost of their car insurance by scouring the market for the most competitive deal. But all that rigour will go out of the window if, once you've found a policy, you decide not to call on it in your hour of need.

That's the case with many drivers, who worry about the fate of their no-claims discount (NCD) or bonus (NCB). Most insurers offer a reduction on premiums to people who haven't made a claim on their insurance. This discount rises every year you don't claim, up to a maximum of 65 or 70 per cent, making a big difference to the premium.

But fear of losing this discount is putting a lot of drivers off claiming. New research from insurer More Th>n has found that 43 per cent of motorists would pay £200 or more on car repairs, rather than claim on their insurance, to ensure they don't lose their NCB. And in London, nearly 30 per cent of drivers would pay more than £500 out of their own pocket before making a claim.

Typically, depending on the insurer, you lose one or two years of discounts if you claim, and you run the risk of your premium increasing. Many drivers, therefore, don't think there's much point in making a call on their policy unless it's for a substantial amount. And they could be right. "If it's only for £200, it wouldn't be worth it, particularly if the no-claims discount isn't protected," says Russell Byrne, private motor product manager at AXA Insurance.

Most insurers offer customers the option of protecting their NCD, although this will increase the premium and you usually need at least four years' no-claims before you're be eligible. However, paying the extra could be worth it.

"If you make a claim, [your NCD would] step back two years, which would mean your discount is cut by about 20 per cent," says Richard Alger, market development manager for private motor insurance at Norwich Union. "If you live in a large city and are in the highest premium bracket, a 20 per cent increase can make a big difference to the cost."

But the terms of these guarantees vary, so David Pitt, motor insurance manager at More Th>n, recommends that you check the wording of the policy. More Th>n and Eagle Star both offer eligible customers bonuses for life, so regardless of how many claims you make, your NCD will not decrease.

But with most insurers your NCD is protected only for a certain number of claims (see the table above for details). Another result of making a claim is that your premium will go up, and most protected NCD policies don't offer cover for price hikes.

"We can't guarantee premiums," says Kathryn Pugh, spokeswoman at Eagle Star. "As a driver you represent a risk and your premium is calculated on this. If you have one claim, it doesn't really change your risk, but if you have a number, your risk profile would change and your premiums go up."

As part of its lifetime guarantee, More Th>n also ensures that your premiums won't be increased as a result of a claim. It believes that the fact most insurers don't do this is another reason why so many drivers would rather pay for repairs to their car out of their own pocket.

"It's a crazy situation when people are paying for car insurance and then not claiming for fear of losing their bonus," says Mr Pitt. "If you do have an unfortunate mishap, submit a claim. We're saying we will not increase your premium or reduce your no-claims bonus, and we've given that commitment contractually."

However, other insurers don't think this is a big issue for motorists. "The overriding factor for people is whether they want comprehensive cover or third party, fire and theft," says Craig Staniland, group head of motor underwriting at Churchill. "The level of NCD, and whether it's protected, and the excess are considerations, but I think these do play second fiddle to price."

Mr Staniland says he would interpret More Th>n's findings differently: if 43 per cent of drivers would be happy to spend £200 on car repairs rather than claim on their insurance, they should increase their excess. The standard level of excess varies depending on the insurer, though it tends to be around £120. But if you opt for a higher level, your premium will be reduced. So if you wouldn't make a claim unless it was for a substantial amount, it's well worth increasing your excess.

Insurers that don't offer bonuses for life also argue that their claims experience shows the protection they offer is adequate, as most people make a claim on their car insurance only once every four years or so. And they ask who will meet the cost of claims if the customer's premium is guaranteed.

"If a driver keeps having accidents, someone has got to pay for it," says Emma Holyer, a spokeswoman for Direct Line. "So if it's not that particular driver, surely all the other customers must somehow be subsidising them."