This is the final article in the series in which Roy Rodger looks at the extra benefits of comprehensive cover. This week, new car cover and no claims discount protection are examined

A feature that is now part of the standard comprehensive cover issued by most insurers is new car cover.

The main reasons for its introduction arises from the amount of tax paid on new cars and the depreciation suffered during the first years of a car's life.

Motorists writing off new cars were finding that the book value settlement (market value) offered was just not enough to replace the car they had lost.

This caused many arguments and disputes over valuations, so the market responded very positively by revising its stance on "indemnity" in these cases.

The deal usually applies only for one year after the car has been bought from new, but some insurers may continue it for two years. There are several conditions:

  • The car has to be a total loss, or stolen and not recovered
  • If seriously damaged, the repairs would cost over 60% of the replacement cost, that is the "book" value before the accident
  • The car has to have been bought new by the policyholder, which means that he alone has suffered the depreciation
  • The cover applies only to cars owned by the policyholder and not to those leased or hired
  • The insurers will replace the car with one of the same make and model. In cases of difficulty, such as unusual models, insurers should be reasonable- they have, after all, offered the cover and taken the premium. In other words, if they anticipate problems, they should make it clear at the outset.

    The deal is to replace the car. This enables insurers to negotiate substantial discounts from manufacturers. If the customer wants cash in hand, he will get the "book" value.

    But, having said this the ombudsman has, on occasion, said that, if the policyholder insisted, insurers should pay the new value instead of replacing the car.

    It is worth looking at the ombudsman's website for this and other information.

    In the case of older cars, at least one insurer offers a special service to customers who have written off older cars. They put them in touch with an organisation which will find a car similar to the one written off, check it for hire purchase links, do a mechanical inspection, valet and deliver it.

    Another feature of comprehensive cover is no claims discount (NCD) protection.

    If a motorist on 60% or even 70% NCD has an accident, the loss of his NCD can result in him having to pay a lot of money at next renewal. It was for this reason that the market introduced NCD protection.

    The problem of complete loss of NCD had been partly addressed by the Step Back system, where a driver loses only one-year's NCD. But, as premiums increased, even this was felt to be harsh on drivers who had made only one transgression over many years of claim-free driving.

    Limited number
    The actual detail varies from insurer to insurer, but they all permit the driver to have a limited number of claims within a specified period without losing any NCD.

    To be eligible for NCD protection, a driver normally has to be claim-free for several years and be on maximum NCD. The protection then keeps him on maximum so long as his claim record remains within the protection rules.

    A typical scheme would permit one claim in any one period of insurance and no more than two claims in three (or five) consecutive periods of insurance. The effect of having a claim too many would mean that the NCD would drop as if no protection had been in force, for example, two steps back. In these cases the customer loses his protection until he reaches maximum and meets all the other scheme criteria again.

    It is difficult for a customer who is on maximum NCD to switch insurers and retain maximum NCD purely by virtue of NCD protection. New insurers will not recognise the old insurer's protection and will only allow the driver to transfer NCD based on his claim-free years. Effectively, this enables the holding insurer to retain his customer a little longer.

    If a driver loses his protection due to claims, he needs to study his insurer's rules carefully as it may or may not be worthwhile continuing to pay the extra premium for protection. He may find that it is more economical to cancel the protection cover until he is eligible again.

    Another form of NCD protection is guaranteed bonus. Once the customer has been on maximum NCD for a period of years, his NCD becomes guaranteed.

    This means that he can have as many claims as he likes without the NCD being affected.

    For obvious reasons, this is very popular with customers, but insurers have found that without the in-built risk management function of an NCD scale, claims can get out of hand.

    As with unprotected NCD, insurers will count only "fault" claims. (This term is so misleading and emotive - why not say "non-recoverable"?)

    Some customers on maximum NCD by virtue of guarantee or protection seem to think that insurers are barred from imposing a claims loading on their policies. This is not the case. If the experience is serious enough, the loading is justified.

    Question 1
    Insurers include new car cover in the policy:
    a.To enable the policyholder to use the money to buy a better car than the one lost

    b.In certain circumstances, to replace the car with a new model

    c.To protect the policyholder from the effects of tax and depreciation on new cars

    d.Customers who write off old cars can buy new ones.

    Question2
    Policyholders buy NCD protection because:

    a.It means they can have as many claims as they like without losing their NCD

    b.NCD protection gives them some protection against losing all their NCD at once which is better than the Step Back system

    c.The insurer cannot alter the premium as long as the policyholder is on maximum NCD

    d.If they change insurers after a claim, the protection will be transferred with them.

    This week's CPD article is contributed by Roy Rodger, technical consultant to

    The Motor Investigation Agency.He can be contacted at: Motor Investigation Agency, 1 Old Hall Street, Liverpool, L3 9HF. Tel: 0151 236 7878. Mobile: 07931 511 258, Fax: 0151 236 6464 and email at: rar@mia-ltd.com .

  • The CPD page is edited by RWAssociates, specialists in training, competence and compliance. Email to: ruy.lopez@rwassociates.softnet.co.uk

    The last two CPD articles referred to the Green Card system operating in Europe. There is now an updated map and country list available from Roy Rodger, who can be contacted as above.

    How to use CPD
    This free Insurance Times reader service is intended to help you improve your skills and understanding from the comfort of your office or home. All you have to do is read the text and answer the multiple-choice questions. The answers will appear in next week's issue.

    Why CPD is important
    The Financial Services National Training Organisation (FSNTO)'s mission is to improve the quality and skills of the workforce as a fundamental requirement for the sustainable competitiveness of the industry. We fully support the practice of continuing professional development (CPD) as a major contributor to achieving this aim. Many people across the sector are required to undertake CPD by virtue of the work they do or the professional body to which they belong, but everyone can benefit from continuing to develop their knowledge and skills.