Motorists who believe having years and years of no claims will result in lower car insurance premiums might not find that to be the case, new research claims.
Insurer Coverbox – which specialises in telematics cover – suggests that after the first two years of no claims most British drivers with traditional motor policies will experience an annual increase in their premiums, even if they rack up another year of a clean driving record.
The research found that the most significant savings are passed onto drivers in their first year of no claims, however, the savings reduce significantly in following years.
This means that annual price hikes start to outstrip discounts from extra years’ no claims.
No claims lacks reward: A new piece of research suggests that the value of a no claims discount becomes less rewarding after the first year to the point where the increase is offset by the higher cost of insurance after the second year
The telematics insurance provider, which has an interest in promoting its type of policy, said this was because the base insurance cost increases at a greater rate than the no claims discount, leading to an overall increase in the final premium quote.
Using data collected from four major insurers it partners with, Coverbox said the average first-year no claims discount (NCD) was 26 per cent.
However, the rate of increase as drivers built up their NCD is smaller with each year their driving record goes untarnished.
For instance, in the second year it rises to 33 per cent on average but jumps to just 38 per cent the next year.
In fact, it claims that the NCD value between year five and nine differs by just five per cent – a small reward for the accomplishment of making zero claims on a motor insurance policy for the best part of a decade.
And Coverbox says the average increase in NCD value from year two to three works out at less than the average increase in insurance prices, based on Confused.com’s index.
Average no claims discount value for traditional motor cover
Year 1 NCD – 26%
Year 2 NCD – 33%
Year 3 NCD – 38%
Year 4 NCD – 43%
Year 5 NCD – 45%
Year 6 NCD – 46%
Year 7 NCD – 47%
Year 8 NCD – 47%
Year 9 NCD – 50%
Source: Coverbox research based on average NCD from four insurance providers
As a result, a driver with three years of no claims could still see their cover increase by 2.7 per cent year-on-year on average.
This translates to a driver with three-years no claims paying £16 more for annual cover, despite building up what might be perceived as an increasing discount.
That said, according to Confused.com’s most recent price index covering the first three months of 2018, UK drivers saw average insurance costs fall year-on-year.
The average premium is £768, according to the comparison site.
This data is also based on quotes given to drivers and not necessarily what they paid.
It suggests an average decline of £13 on the average motor policy, though this data also includes telematics cover and not just traditional car insurance.
Motorists who shop around rather than accepting renewal quotes can typically drive down their insurance costs and potentially even see the bill fall below the previous years.
Coverbox claims that good drivers with telematics policies will reap a 29 per cent saving on average, in addition to the same discounts from accruing a traditional no claims discount.
‘This means that a driver with three years no claims discount on a telematics policy could spend on average £180 less than a non-telematics driver with the same no claims discount,’ the insurer said.
Howard Collinge, Director at Coverbox, added, ‘While the standard no claims discount offered to non-telematics drivers initially leads to good savings, diminishing discounts can be counteracted by rising general insurance prices, ultimately resulting in drivers paying more for insurance at renewal even if they continue to drive safely on the roads.’
He added:’Blackbox policies can provide further discounts based on an individual’s driving style and work in conjunction with no claims discounts to convey meaningful and sustained savings to good drivers.
‘In the case where a claim is made, Coverbox will still use the driver’s record to provide a discount to good drivers, drastically softening the blow of losing some no claims discount at renewal where traditional insurers would completely disregard the driver’s ability.’
So is telematics better?
This, of course, is very much a ‘best case situation’ calculation.
Drivers deemed not so good based on a telematics review are likely to be punished with lesser discounts, and in some cases higher premium if they perform badly.
Telematics insurance is becoming increasingly popular, mainly among new licence holders, as they offer more affordable costs compared to traditional policies.
According to a study by MoneySupermarket.com last year, the average 17 to 20 year old should expect to save an average of £202 a year by allowing providers to monitor their four-wheel movements using a blackbox installed in their car.
These savings have driven a huge uptake in this type of insurance, with more than half of all policies taken out by 17-year-olds in 2017 being telematics products – up from 35 per cent in 2016, the comparison site said.
Those who are more experienced drivers and benefit from lower premiums may decide that the intrusiveness of telematics and their driving being rated is not worth the trouble.
However, Coverbox says it is seeing a huge uptake in older drivers taking out their policies and saving money when their premiums are £650 or more.
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