No-claims bonuses cost the insurance industry

By: Chris Barry, Managing Director of Heavy Commercial Vehicle Underwriting Managers

No-claims bonuses reduce the number of claims from existing insurance clients, and promote the sales of new policies. Surely, this is a win-win for the insurance industry. No-claims bonuses put many consumers at risk because they do not fully understand the implications of not claiming from their insurers.

What’s more, insurers themselves are likely to suffer unintended consequences when industry colleagues employ this marketing scheme.

Particularly in the case of third-party claims, where consumers feel someone else is responsible for an accident, they are likely to approach the insurer contracted to the third party rather than their own insurer.

When consumers approach the insurer of the person or company ‘responsible’ for the accident in their private capacity, they are not protected by contractual law because their contract is with their own insurer.

Consumers have little understanding that motor claims are not transactions but variations of legal culpability.

As a result, claims staff come under pressure to deal with irate consumers who are not their own clients, arguing about the merits of claims and frequently, unrealistic quantum’s.

This is a drain on resources in several ways. To guard company reputation in the age of social media and online consumer reviews, we are frequently compelled to send our assessors to view vehicle damage even though the vehicle is not covered by one of our policies. We also must assign someone from our claims team to manage communication with consumers – this means they are not spending time assisting clients.

In addition to the drain on resources, there an emotional impact on employees who must manage consumers who aren’t their clients as they are keenly aware that conflict between consumers and insurers brings the whole industry into disrepute.

Insurers that focus their marketing and sales activity on passively discouraging policyholders from claiming may not actually be able to handle claims when they do occur. The reputational damage caused by consumer perception that insurance services aren’t reliable or trustworthy filters from one provider to the whole industry.

Incentives will always form part of the sales process, but insurance policies purchased on the promise of a no-claims bonus encourages poor decision-making, endangering both policyholders and insurers.

I support industry conversation that results in firm guidelines on the use of this marketing practise, to protect both consumers and insurers from no-claims bonuses.