A no claim bonus is a discount on your car insurance premium that rewards you for not making claims. Every year you go without filing a claim, your insurer increases your discount rating, which means you pay less for the same cover. Think of it as your insurance company saying thanks for being a safe driver. Most Australian insurers use a rating scale from 1 to 6, where rating 6 gives you the maximum discount on your premium. You start at rating 1 when you first get insured, then move up one level each claim free year.
This guide explains exactly how the no claim bonus system works in Australia. You’ll learn how the rating scale affects your premium, what happens when you make a claim, and how to protect your accumulated discount. We’ll also cover whether reaching the maximum rating actually guarantees you the cheapest insurance, and how to get the best value from your policy. Understanding these mechanics helps you make smarter decisions about when to claim and how to keep your premiums as low as possible.
Why a No Claim Bonus lowers your insurance costs
Your insurer calculates premiums based on risk assessment, and your claims history is one of the strongest predictors of future claims. When you avoid making claims year after year, you prove you’re statistically less likely to cost the insurer money. This lets them confidently offer you a lower premium because the mathematical probability of having to pay out on your policy drops significantly.
Lower risk equals discounted pricing
Insurance companies track millions of policies and identify clear patterns. Drivers who make no claims over several years cost insurers far less than those who claim regularly. Your clean record signals you’re a safer driver, you maintain your vehicle properly, or you choose not to claim for minor damage.
These behaviors all translate to reduced financial risk for the insurer, which they reward through premium discounts. Understanding what is a no claim bonus helps you see why insurers price policies this way. They’re not just being generous, they’re making a calculated business decision based on your proven track record.
The longer you go without claiming, the more confidence your insurer has in your low-risk profile, allowing them to reduce your premium accordingly.
How your rating affects your price
Actuaries use your claims history as a key pricing variable alongside factors like age, location, and vehicle type. When you build up a strong no claim bonus rating, you offset higher-risk factors that might otherwise increase your premium. Your accumulated discount can reduce your premium by 60% or more compared to a new policyholder with no rating, making it one of the most valuable ways to control your insurance costs over time.
How the rating system works in Australia
Australian insurers use a standardised rating scale from 1 to 6 to calculate your no claim bonus discount. You begin at rating 1 when you first take out comprehensive car insurance, which offers no discount on your premium. Each year you hold continuous insurance without making an at-fault claim, you move up one rating level. This progression continues until you reach rating 6, the maximum discount level, which typically takes five claim-free years to achieve.
The six-level rating scale
Rating 1 represents zero discount on your base premium, while rating 6 delivers the maximum discount your insurer offers. The actual percentage discount varies between insurers, but rating 6 commonly provides between 60% and 65% off your base premium. Ratings 2 through 5 sit between these extremes, with each level adding progressively larger discounts. Your insurer applies your rating discount before adding any other premium adjustments for age, vehicle type, or location.
Moving up the rating ladder
You climb one rating level per claim-free year as long as you maintain continuous comprehensive cover. If you understand what is a no claim bonus and how it builds, you can plan your insurance strategy more effectively. Switching insurers doesn’t reset your rating as long as you provide proof of your existing rating from your previous insurer, usually through a no claim bonus letter or statement showing your claims history.
Your rating transfers between insurers when you switch policies, so you never lose your accumulated discount by changing providers.
How making a claim impacts your discount
Making an at-fault claim drops your rating by two levels, which directly increases your premium at renewal. If you’re at rating 5, you fall back to rating 3 after one claim. This two-level penalty applies regardless of claim size, so claiming $500 in damage costs you the same rating reduction as claiming $5,000. Your insurer doesn’t consider the dollar amount when adjusting your rating, only whether you made a claim and who was at fault.
Rating reduction mechanics
When you drop two rating levels, you lose years of accumulated discount in a single claim. Rebuilding from rating 3 back to rating 5 requires two claim-free years, while returning to rating 6 needs three years. Understanding what is a no claim bonus and how quickly it disappears helps you decide whether small claims are worth filing or if you should pay out of pocket to preserve your discount.
A single at-fault claim can cost you more in increased premiums over the following years than the actual repair amount you claimed.
Not-at-fault claims and your rating
Most insurers don’t penalise your rating for not-at-fault claims where another driver caused the accident and their insurer accepts liability. Your rating stays intact when you claim against the other party’s insurance. However, some insurers still reduce your rating if they can’t recover costs from the at-fault party, so always confirm your insurer’s specific policy on not-at-fault claims before assuming your rating is protected.
How to protect your bonus rating
You can safeguard your accumulated discount through strategic claim decisions and by purchasing no claim bonus protection cover as a policy add-on. When you understand what is a no claim bonus truly costs you over time, you make better decisions about whether to claim for minor damage or pay repair costs yourself. Your insurer offers specific protection options that preserve your rating even when you need to make a claim.
No claim bonus protection cover
Most insurers sell rating protection as an optional extra that costs around $50 to $150 annually. This add-on lets you make one at-fault claim per year without losing rating levels, though your base premium may still increase at renewal. Protection cover works best when you’ve reached rating 5 or 6 and want insurance against accidentally damaging your vehicle yourself, such as reversing into a post or scraping a gatepost.
Paying for minor repairs yourself
Calculate whether paying small repair bills yourself saves more money than claiming and losing two rating levels. If your excess is $700 and the damage costs $900, you only recover $200 from claiming. Dropping two rating levels typically increases your annual premium by $300 to $600 for the next few years, making the claim financially worse than paying the full repair cost.
Preserving your rating by paying for minor damage yourself often costs less than the premium increases you’ll face after claiming.
Does a maximum rating guarantee cheaper insurance?
Reaching rating 6 doesn’t automatically give you the cheapest available premium in the market. Your maximum discount applies to your insurer’s base premium, which varies significantly between companies. One insurer might charge a $2,000 base premium and offer you 60% off, while another charges a $1,400 base premium with the same discount. The second insurer costs you less even though both apply your rating 6 discount identically.
Why insurers price differently
Each insurance company uses different risk models and cost structures that produce varying base premiums. Some insurers specialise in certain demographics or vehicle types, letting them offer lower base rates for specific customer profiles. Your age, postcode, vehicle value, and driving purpose all influence your base premium before any rating discount applies. Understanding what is a no claim bonus helps you realise the discount percentage matters less than your final dollar cost.
Comparing total premiums
Always compare final quoted prices across multiple insurers rather than focusing only on your rating discount. An insurer offering a smaller percentage discount might still deliver the lowest total premium because their base pricing suits your risk profile better. Request quotes from at least three insurers when your policy renews to ensure your rating 6 discount works hardest for your wallet.
Your rating 6 discount saves you the most money when applied to an insurer whose base premium already suits your risk profile.
Getting the best value from your policy
Understanding what is a no claim bonus gives you powerful leverage when shopping for car insurance. Your accumulated rating represents years of safe driving and financial discipline, but that discount only matters when you apply it to a competitively priced base premium. Compare quotes from multiple insurers annually, even when you’re happy with your current provider, because market rates shift constantly and new insurers enter the Australian market with aggressive pricing.
Request detailed quotes that show your base premium and discount separately, so you can see exactly how much your rating saves you. Check whether protection cover makes financial sense based on your driving patterns and the probability of making a claim. Review your excess levels to find the right balance between lower premiums and manageable out-of-pocket costs if you need to claim.
Get a competitive quote from National Cover to see how your no claim bonus translates into real savings on comprehensive car insurance.
