No claim bonus in motor insurance

What is no claim bonus in motor insurance?

The no claim bonus (NCB) in motor insurance is a discount on the own damage premium that an insured earns by not making a claim during the previous policy year or years. It starts at 20% after one claim-free year and rises in steps to a maximum of 50% after five consecutive claim-free years. It does not apply to the third party premium, which is fixed by government.

NCB is attached to the insured person, not to the vehicle. This is why it can be carried to a new vehicle and to a new insurer, but not handed to the buyer of the old vehicle. Health insurance has a different concept with the same name; see no claim bonus in health insurance.

How motor no claim bonus works in India

The scale comes from the old India Motor Tariff and is still used in standard policy wordings:

The main rules:

• Earned at renewal. NCB is given only when the policy is renewed after a full policy period with no claim made or pending.
• 90-day window. NCB is kept only if the policy is renewed within 90 days of the previous policy's expiry. After that it falls to zero. The standard wording allows an extension up to 365 days for military and paramilitary personnel posted in forward areas, on a declaration that the vehicle was not used.
• One claim resets it. A claim during the year means no NCB at the next renewal. The usual industry practice is to start the scale again from zero. Some insurers sell an NCB protection add-on that keeps the earned slab despite a limited number of claims.
• Moving to a new insurer. The customer keeps the NCB on switching, by showing the previous insurer's renewal notice or a letter confirming entitlement, or the expiring policy with a declaration that no claim was made.
• Selling the vehicle. The policy can be transferred to the buyer, but the NCB cannot. The buyer pays back the NCB discount for the rest of the policy period. The seller can apply the NCB to a replacement vehicle, and the old IRDAI handbook notes a three year period within which this can be done.

Example

A car's own damage premium before discount is ₹15,000. After three claim-free years the owner renews with 35% NCB, so the own damage premium is ₹9,750, plus the third party premium and GST. If the owner makes a ₹12,000 claim for a dent in the fourth year, the next renewal is back at full own damage premium, which is ₹15,000 if nothing else changes.

What motor no claim bonus means for distribution

• Small claims and NCB. Customers often ask whether to claim for minor damage. A good adviser helps them compare the repair bill with the NCB they would lose over the next few renewals, without telling them what to do. A ₹6,000 claim can cost more than ₹6,000 in lost discount on an expensive car.
• Verify the NCB declaration. NCB is often declared at renewal by the customer or the selling channel. A false NCB claim found at claim time can lead to the claim being reduced or the policy being questioned. Distributors should collect the previous policy and check claims history through industry data where the insurer provides it; the Insurance Information Bureau maintains motor claims data used for this purpose.
• Lapses kill renewals and NCB together. The 90-day rule makes renewal reminders before expiry far more valuable than win-back calls after it. Distributors who track renewal dates protect both their commission and the customer's discount.
• Do not confuse NCB with add-on value. NCB protection and zero depreciation are separate covers. Selling one as if it includes the other is a common source of complaints.
• Ownership changes need endorsement. When a vehicle is sold, the transfer must be recorded with the insurer within the time the policy allows (IRDAI's motor handbook gives 14 days for package policies, failing which own damage claims are not payable). The seller should be told that the NCB stays with them.