Car insurance - is protected bonus a big con?

mouseclick

Background:
I recently advised a friend to get her car fixed after it got scraped when unattended in a car park. She had "protected" bonus with Nationwide. Come renewal, the premium seems much higher. Using www.confused.com, I inserted details of the incident and the protected bonus and got quotes from many companies. They all seemed dearer. I removed details of the incident and they all seemed cheaper.

My Experiment:
I am currently insured with Admiral, 3rd party Fire and Theft, renewal due on 10 November, renewal premium quoted in writing as £280.35. I put all the details into confused.com. I got several quotes starting from £232.

I then introduced a fake "accident" to the quote for myself, £500 damage in July. As I have 9 years protected bonus, I would have assumed this to have no effect on my quotes at all. However, there was a BIG difference, in ALL the quotes. The cheapest before I added the claim was was Bell, I have also chosen several other well known companies in a before and after comparison:

Results:

Before -- After

Bell......... £232

---

£369
Elephant.. £239

---

£383
Admiral.... £245

---

£392
Ecar....... £257

---

£328
Hastings.. £261

---

£280

Conclusion
Am I missing something here? Can someone tell me what is the point of paying extra for protected bonus? None whatsoever, as far as I can see. If you make a claim you have to pay the excess, and then increased premiums, probably for years later.

Comments please?

Pagan98

This is a common misunderstanding. The No Claims Discount is a discount on the base premium taking account of your past claims record; it does not freeze the base premium.

Say you have a NCB entitlement of 4+ years, normally equivalent to about 60% discount. If you then have an accident, your NCB protection kicks in and prevents your discount being reduced (normally by 2 years worth to 40%, say). However, the base premium still rises to take account of the fact that you are now perceived as a higher risk.

So, your base premium following the accident is £369/(1-0.6) = £923 and the price without protected NCD would have been £923*(1-0.4) = £554. Hence you have saved (£554-£369) = £185, plus a smaller saving the next year following the accident, assuming you don't have another prang.

Of course, to get this you have probably paid ~£50 per year in increased premiums. So far less beneficial than it first seems!

melb

I can better that! My car was vandalised last September and I +got the police and informed my insurers (Liverpool and Victoria). However when I realised I had a £150 excess and that the car was still OK to drive I decided not to proceed with the claim. However when I received my renewal notice recently I noticed that the 'incident' was mentioned and that the amount was substantially more (even though I had a newer car it wasn't enough to warrant the price hike) I rang L & V who assured me that the 'incident' hadn't affected the quote price. I was covered comprehensive with 9 years NCD protected. I decided to look online to compare prices - who should come out cheapest but L & V by over £200! I rang them and said I would be renewing online but it still made a difference of £80 when they included the 'incident' on the quote.

mouseclick

Pagan98 wrote: »

This is a common misunderstanding. The No Claims Discount is a discount on the base premium taking account of your past claims record; it does not freeze the base premium.

Cheers for that. It seems to be a common misconception because this is what the motor insurance companies want us to think. When I look at sites such as Norwich Union, they have in their FAQ:

"9. What is protected No claims Discount?With Norwich Union Direct, clients can protect their no claims discount for up two at fault claims in any 5-year period. This means that if your car is stolen, or you have no other party to claim against, you wont have to lose your no claims discount as well. Clients must have at least 4 years no claims discount and be over 21 years old in order to be eligible."

There is conveniently no mention of "base premium" going up. The question begs to be asked, does the base premium go up by the same amount if you don't have protected bonus?

It's a pity the motor insurance industry is not more heavily regulated. From what I have read so far, it seems it should be. Maybe I should get third party only insurance with no frills, and put the rest into a pot for a rainy day.

mouseclick

melb wrote: »

I can better that! My car was vandalised last September and I +got the police and informed my insurers (Liverpool and Victoria). However when I realised I had a £150 excess and that the car was still OK to drive I decided not to proceed with the claim. However when I received my renewal notice recently I noticed that the 'incident' was mentioned and that the amount was substantially more (even though I had a newer car it wasn't enough to warrant the price hike) I rang L & V who assured me that the 'incident' hadn't affected the quote price. I was covered comprehensive with 9 years NCD protected. I decided to look online to compare prices - who should come out cheapest but L & V by over £200! I rang them and said I would be renewing online but it still made a difference of £80 when they included the 'incident' on the quote.

What a con!

mouseclick

I rang up Admiral renewals to ask about protected bonus on my renewal. They gave me the usual talk about how wonderful it was. I then asked about increases in base premium, i.e. how much? I was told the salesman could not anwser that question. On hold, usual music, claims answered. Claims said they did not know the base premium increases, I could only get that sort of information from renewals, and ONLY when my renewal was due. When I told her I was transferred to her from renewals, and my renewal was due, she didn't know what to say. So I hung up, to save my time and the cost of an 0870 call.

Confused.com have a guide to various terms here. It seems useful. Now I understand the meaning of the name of their website.

raskazz

mouseclick wrote: »

Cheers for that. It seems to be a common misconception because this is what the motor insurance companies want us to think.

There is conveniently no mention of "base premium" going up. The question begs to be asked, does the base premium go up by the same amount if you don't have protected bonus?

It's a pity the motor insurance industry is not more heavily regulated. From what I have read so far, it seems it should be. Maybe I should get third party only insurance with no frills, and put the rest into a pot for a rainy day.

Er, hold on - what is the product described as? Protected No Claims Discount not Protected Premium. To be honest, if a consumer cannot understand the clear difference between those two things then explaining it in terms of base premiums is likely to futher confuse people!

You think insurance is not regulated enough? Try reading the 8 sections of the ICOB and then tell us what they have omitted!

http://fsahandbook.info/FSA/html/handbook/ICOB

NCD is the last factor applied in the rating process; the base premium will be the same if an accident is added whether or not NCD is protected.

SilverScooby

It's not a con. A few years ago I wrote off a car and elephant paid out £10k no problem and I kept my full NCD. Obviously the premium on renewal went up as I had the incident on my record, but by nothing like as much as if I'd not protected my NCD

Hazzanet

Absolutely - the PNCD simply protects the amount of discount given on a base premium, so for example if you have 5 years NCD, the 65% (typically) discount that's applied after loadings for claims, area, vehicle is protected, not the variables that go into making up the initial premium before discount. It's a common misconception that the premium will freeze.

Also, I have to agree with raskazz - insurance used to be simple to administrate and sell before the FSA came in and dropped their ICOB on insurers, brokers and intermediaries alike. I can't write an e-mail to a client now without regurgitating something about Terms of Business, conflict of interest or sending a key-facts sheet. Gone are the days of simplicity!

Hazzanet

mouseclick wrote: »

There is conveniently no mention of "base premium" going up. The question begs to be asked, does the base premium go up by the same amount if you don't have protected bonus?

Yes, although the difference in the base will be discounted by you NCD. Therefore if you have 65% NCD and the base increases by £100, you'll only pay £35 of that £100 base increase.

mouseclick

Well, I expected the premium to be X based on my age and experience, miles driven with a bonus if I don't have a claim. As I drive a low value car, do low mileage, and have not had a claim for 10 years, I may as well forget all this no claims protection stuff and go for the cheapest I can get. I just inserted figures into confused.com for a 5 year NCD, one "test" accident as before, and some of the premiums were cheaper than 9 years protected!