Key Takeaway

A no-claim discount (also called a no-claim bonus) rewards Australian drivers who do not make claims on their comprehensive car insurance with progressively lower premiums. Rating one is the highest discount level, typically earned after four to six consecutive claim-free years, and can reduce your premium by 60% or more. You lose your rating when you make an at-fault claim or certain types of not-at-fault claims, dropping you back to a lower rating level and increasing your premium for several years.

What a No-Claim Discount Is

A no-claim discount is a premium reduction offered by Australian car insurers to reward policyholders who do not lodge claims. According to ASIC MoneySmart, the system assigns you a rating (usually between rating one and rating six) based on your claims history, with rating one offering the largest discount and rating six (or no rating) offering no discount at all.

Each consecutive year you hold comprehensive car insurance without making a claim, you move up one rating level. Most insurers cap the maximum discount at rating one, which typically requires four to six claim-free years depending on the insurer. The discount applies to the base premium before other factors such as excess, cover type, and vehicle value are calculated. As covered in foundational business education texts such as Introduction to Business, insurance pricing models reward lower-risk customers to balance the insurer’s overall risk pool.

How You Earn Rating One

You earn rating one by maintaining continuous comprehensive car insurance and avoiding claims for the required period, typically four to six years. The rating accumulates year by year: you start at rating six (or unrated) when you first take out a policy, move to rating five after one claim-free year, rating four after two years, and so on until you reach rating one.

According to the Insurance Council of Australia, the no-claim discount applies only to comprehensive cover. Third party property, third party fire and theft, and Compulsory Third Party (CTP) policies do not earn or recognise no-claim ratings. If you switch from comprehensive to a lower level of cover, you stop accumulating rating improvements, and some insurers may not recognise the rating when you return to comprehensive cover later.

Your rating is portable: when you switch insurers, the new insurer will usually recognise your existing rating if you provide proof (a letter or statement from your previous insurer confirming your claim-free years). However, recognition is at the new insurer’s discretion, so confirm their policy before cancelling your current cover.

How You Lose Your Rating

You lose part or all of your no-claim discount when you make a claim, and the impact depends on the claim type and your insurer’s rating protection rules. At-fault claims (where you are deemed responsible for the incident) almost always drop your rating by one or more levels. According to Finder Australia, a single at-fault claim typically drops you from rating one to rating three or four, erasing two to three years of discount accumulation and increasing your premium significantly at the next renewal.

Not-at-fault claims (where another party is responsible and identified) may or may not affect your rating, depending on the insurer’s policy. Some insurers protect your rating for not-at-fault claims, while others apply a smaller rating penalty. Glass-only claims (windscreen or window damage) and claims covered by rating protection (see below) usually do not affect your discount.

Read also: How to Lower Your Car Insurance Premium in Australia

You also lose your rating if you let your insurance lapse. A gap in cover resets you to unrated or rating six when you take out a new policy, even if you held rating one previously.

Rating Protection

Many Australian insurers offer optional rating protection (also called no-claim bonus protection) for an additional premium. Rating protection allows you to make one or two claims within a specified period (usually one to three years) without losing your rating. However, protection does not prevent your premium from rising after a claim; it only preserves your rating level for the next renewal. The claim still appears on your record and may increase your base premium or make cover harder to obtain elsewhere.

Rating protection is not available to all policyholders and usually requires you to hold rating one for a minimum period before you can purchase it. Read the Product Disclosure Statement (PDS) to understand the protection limits, eligible claim types, and exclusions.

Next Steps

If you are approaching a rating milestone, avoid making small claims where the repair cost is close to or below your excess amount; paying out of pocket preserves your rating and saves more over the long term. Before lodging any claim, ask your insurer how it will affect your rating and whether rating protection applies. Review your PDS and compare policies annually to ensure you are receiving the maximum discount your claim-free record entitles you to.

General Advice Warning: This article provides general information only and does not take into account your objectives, financial situation, or needs. Before acting on this information, consider whether it is appropriate for you and read the relevant Product Disclosure Statement (PDS). For advice tailored to your circumstances, consult a licensed insurance adviser. Cover terms, no-claim discount structures, and rating protection rules vary by insurer and state; confirm current details in the PDS or with your insurer before deciding.