How does a No Claims Discount Work
Find out about having a no claims discount on your health insurance, and how this compares to a community-rated policy.
What is a No Claims Discount?
If you have car insurance, you probably already know what a no-claims discount is, and it works the same way in a private health insurance policy. It simply means you pay less for your cover if you don’t make a claim. However, if you do make one, it could affect your renewal cost and potentially increase future quotations.
How do health insurers use a No Claims Discount?
Every insurer has its scale of no claims levels corresponding to a particular discount. With group policies, for example, some providers give every person on the document their no-claims discount, while others will increase the price for everyone if one member makes a claim. This is worth bearing in mind if you seek joint, family or company health insurance.
Many clients need help to work out the cost of a potential claim. A common misconception is that losing 15% of a no claims discount means the premium will increase by 15% too. However, this is not the case.
Peter pays £1000 annually for his policy, and has a 50% no claims discount. He makes a claim against his policy and his renewal quote is issued for the next policy year with only 35% no claims discount, losing him 15%. His new premium is calculated like this:
Step 1) Premium / previous no claims discount = 1% of base rate premium
Step 2) 1% of base rate premium x new percentage to pay = new premium
So in this case:
Step 1) £1000 / 50 = £20
Step 2) £20 x 65 = £1300. This is a £300 increase as a result of the claim.
Depending on Peter's insurer, his no claims discount may reduce again if he claims again in the same policy year.
Why is it important to seek advice on No Claims Discount?
We used simple math in the previous example, but there could be far more complex additional costs to consider. For instance, insurance premium tax could increase at renewal, and age and base rate medical inflation could impact the price too. If you have a no-claims discount, you’ll need to consider whether making a claim is financially worthwhile.
This means you must understand how an insurer’s no-claims discount system works.
Community-Rated Health Insurance: An alternative to a No Claims Discount
If a no claims discount scheme does not convince you, you could consider community-rated health insurance instead. These plans are typically more expensive to join but can bring increased stability year on year, as your claims do not directly influence the renewal premium on your policy. Some insurers even fix their pricing for the first two years.
The cost of a claim is spread across the entire membership — in other words, every customer with the same product will chip in. This means if your provider has a good year and the cost of claims is low overall, your premium won’t increase much, even if you have claimed heavily. However, community-rated health insurance could cause your prices to rise if your provider has made lots of payouts that year, even if you haven’t claimed.
Compared to a no-claims discount, prices usually stay stable for longer (even when claiming regularly), so paying a higher initial premium for a community-rated plan may be the right choice for you.
Which health insurers offer a No Claims Discount?
Which insurers offer community-rated schemes?
Community-rated schemes aren’t generally available from the biggest health insurers, but we can compare plans from the following providers:
The Exeter – New underwriting only
General & Medical
What does Vitality Health offer?
Vitality Health doesn’t offer a no claims discount or a community-rated plan. Instead, they follow an ABC pricing system that stands for:
Base rate medical inflation
There is no initial discount, meaning you pay 100% of the ‘true’ cost, also known as the base rate price. You are told what will happen if you make a claim against the policy, and the percentage increases are listed in their policy documentation.
However, Vitality does give you the chance to earn a discounted claims impact. If you track your exercise to prove you are generally fit and healthy, your claims increase will decrease as you move up activity levels.
If this is something that interests you and you would like more information about how it works, please call us for advice or get a free quote.
Please see details on different types of Underwriting