Abstract-
No Claim Bonus(NCB) has since long served as an effective tool to reward Customers based on their Risk Profile and has served the purpose well but it also has had its share of complications both at the time of claims and while underwriting. In an era where the industry has found ways to track policy as well as claim history through portals like vahan and IIB, sticking to NCB seems outdated specially when Own Damage Premium discounting is free and can be done by individual companies based on policy performance. Insurers can go for risk-based underwriting supported by initiatives such as standardized Driver Report Card that reflects actual claims history.
Overall, doing away with the concept of NCB seems like a reality in current times and Industry has every reason to look forward.
I distinctly remember one of my earliest memories of joining the insurance industry. There was a large pile of envelopes pertaining to documents, which I came to know were NCB confirmation letters received from other insurers, requesting confirmation of a customer’s claim status before policy issuance. Response to those was scarce, and honestly, as I looked more closely, it appeared that most of them didn’t need one either. They had been sent out more as a formality than with any real expectation of a reply. The process existed because the rules said it should. Whether it actually served any purpose was a different question entirely.
That image has stayed with me since then. And when I saw what the latest entrant into the ever-increasing list of insurers has just done with their Super NCB product, it all came rushing back, because it tells me we are still, after all this time, working around a system that perhaps we should have questioned much earlier.
For those who are unaware, a new age insurer, launched with a motor-first strategy, has introduced the concept of Super NCB, a modified NCB reset mechanism where a customer who files a claim drops only one level on the discount scale rather than losing all accumulated benefits, with the company stating this structure allows customers to earn much more in discounts compared with conventional NCB products.
It is a genuinely thoughtful product innovation, and I have a lot of respect for what the insurer is attempting. But it also raises a deeper question in my mind: are we solving the right problem?
Let us First Give Credit Where It Is Due
No Claim Bonus(NCB) was a genuinely smart idea when it was introduced. Think about the environment it was introduced into: there was no centralized claims data, no IIB, no Vahan, and no digital trail of any kind. Insurers were essentially clueless when it came to understanding a customer’s risk profile. In that context and at that time, NCB was a wonderful concept. If a customer hasn’t claimed for a year, reward them. If they haven’t claimed for five years, reward them even more. It was simple and portable, and it worked reasonably well. Discounting under the tariff regime was also heavily restricted, so NCB was one of the very few options insurers had to differentiate and reward good customers. I completely understand why it existed. My issue is that we are still carrying it forward into a world that looks nothing like the one it was designed for.
So What Has Changed?
Quite a lot, actually. Today we have the Vahan platform. We have the IIB ecosystem. We have real-time data sharing capabilities that allow an insurer to pull up a vehicle’s claims history across companies and across years at the point of underwriting itself. The data that NCB was trying to approximate is now directly available to us. So why are we still using the approximation when we have the real thing?
And it is not just about data. The detariffing regime has given insurers full freedom to price their own damage risk as they see fit. Substantial discounts can be offered based on underwriting judgment alone. The NCB component, which at its highest is 50%(65% for Sunset Clause), can very easily be absorbed within the discounting framework that already exists. We do not need a separate, parallel mechanism to do what our pricing tools can already do.
The Problems I Have Seen Personally
Based on my experience in this industry, I have seen NCB cause more confusion and complication than almost any other single concept in motor insurance. Let me share a few things I have observed repeatedly.
Irrespective of severity, all claims get the same treatment. A ₹5,000 claim and a ₹500,000 claim are treated identically; one claim resets NCB to zero. There is no proportionality, no nuance, no fairness in that equation. A minor scratch is treated the same as a major loss. That simply makes no sense in an era where we have the ability to assess actual risk with precision.
Second, the misrepresentation problem. A customer fills in the proposal form, forgets to mention a small claim from two years ago, or genuinely gets confused about whether their NCB was protected or not. The policy gets issued. Then a claim happens. And suddenly we are in a tricky situation: the claim gets deducted or at times even rejected, the customer is upset, and the intermediary is caught in the middle. I have seen this happen so many times, and every single time it could have been avoided.
Third, the quoting nightmare for intermediaries. Ask any broker or agent how often they struggle to get the correct NCB details from a customer at the time of renewal. The customer may not have the previous policy handy. The previous insurer may not respond quickly, much like those scarcely answered confirmation letters I saw on my very first days in this industry. The result is that the intermediary either takes a guess, risks under-quoting, or loses the customer to someone willing to take that risk. In a competitive market, this is a real commercial problem that we tend to underestimate.
Fourth, the portability problem, which is getting worse, not better. When NCB slabs were standardized across all insurers, at least there was a common language. The standard IRDAI-mandated NCB slabs are 20% after 1 claim-free year, 25% after 2 years, 35% after 3 years, 45% after 4 years, and 50% after 5 or more consecutive claim-free years. If a customer came from another insurer with 25% NCB, the new insurer knew exactly what that meant and could replicate it in their system. But now that insurers are free to design their own slabs, as the new insurer has done with their Super NCB structure, we are heading into territory where a customer walks in with an NCB level from their previous insurer that simply does not exist in the incoming insurer’s system. How does one map it? How to honor it? The administrative complexity is only going to grow from here.
The innovation is admirable, but it highlights the deeper issue.
I want to be clear: Super NCB is a customer-friendly and well-intentioned product feature. The idea that a single claim should not wipe out years of accumulated benefit is genuinely fair. But what it actually does is underscore the fundamental problem with the NCB framework itself. We are now in a situation where different insurers will have completely different NCB structures, different slabs, and different reset mechanisms. Portability, which was one of NCB’s original strengths, is effectively broken. And the complexity for intermediaries, operations teams, and customers is about to multiply significantly.
In trying to fix NCB, we are making it more complicated. Perhaps it is time to ask whether we should do away with it altogether instead.
What Other Lines of Business Are Telling Us
It is worth stepping back and looking at what is happening in Fire and other lines of business. The shift there has been slow, but it is happening: a gradual move away from tariff-era constructs toward genuine risk-based pricing. There is no reason why Motor should not follow the same. Because here is the thing, as long as NCB remains embedded in our motor product, we have not truly detariffed. We have detariffed the OD rate but left a tariff-era discount mechanism controlling it. Removing NCB would be the final step toward what detariffing was always supposed to mean, every insurer pricing every risk on its own merits, freely and intelligently.
The Regulatory Direction makes it even easier
And the regulatory environment supports this conclusively. Vide Notification No. F. No.: IRDAI/Gen Insurance/Tariff/13/207/2024 dated March 20, 2024, IRDAI formally de-notified all prevailing tariffs, including fire insurance tariffs, motor tariffs, engineering insurance tariffs, etc., with effect from 01.04.2024. Tariff wordings across lines of business, barring motor third party, have been scrapped, and insurers are now free to offer their own policy wordings and structures. The coverage of risks previously governed by these tariffs is now subject to the IRDAI (Insurance Products) Regulations, 2024, and the Master Circular on products and procedures in the general insurance business.
In plain language, the Indian Motor Tariff, which governed motor insurance pricing for decades, no longer exists in law from April 1, 2024. If the tariff is gone, why are we still holding on to an NCB structure that was born out of that very tariff regime? The regulator has cleared the path. The industry needs to take this ahead.
One Concern I Want to Address Honestly
I know what the first pushback will be, because I have thought about it myself. What happens to a customer who has built up 50% NCB over years of careful, claim-free driving and then decides to sell their car and buy a new one? Under the current system, they carry that NCB to the new vehicle and get an immediate 50% discount from day one. It is a genuinely good customer benefit, and we cannot just take it away without offering something better.
Here is an idea I would like to put forward, and I think it has real merit. What if we introduced the concept of a driver report card? Essentially, when a customer exits a policy or sells their vehicle, their insurer issues them a certified claims history document. It captures not just whether they claimed but how many times, for how much, and what the nature of the claims was. This document travels with the driver, not the vehicle. When they walk into a dealership and insure a brand-new car, any insurer can look at that report card or, better still, pull the equivalent data directly from IIB and price it accordingly.
This is actually better than an NCB transfer in every meaningful way. It captures severity, not just frequency. It is verifiable and tamper-proof, unlike a self-declared NCB percentage. It rewards the driver’s actual behavior, which is ultimately what we care about. And it integrates naturally into a broader data-driven underwriting model. It is what NCB was always trying to do, done properly, with the tools we now have.
So What Should We Do?
My view is straightforward and rational. Rate every vehicle individually. Use Vahan and IIB data to understand the real claims history. Apply own damage discounts based on genuine underwriting judgment. Introduce the Driver Report Card for new vehicle purchases, ensuring loyal customers are never disadvantaged. And where data infrastructure is still not perfect, and I acknowledge it is not, that is where our energy should go. Strengthen IIB. Improve Vahan integration. Make the data robust. Do not preserve a legacy workaround simply because the modern alternative needs a bit more work.
Closing Thought
NCB served this industry well for a long time, and I say that genuinely. The new and innovative concept of Super NCB is proof that smart people are still trying to make it work better, and I respect that effort enormously. But I think we are at a point where innovation within the NCB framework is fighting a losing battle against the fundamental limitations of the concept itself.
We are in a different era now. The Indian Motor Tariff is gone. The data is available, the pricing freedom exists, the regulatory intent is clear, and the technology is ready. Let us move toward a model where every risk is priced individually, every driver is recognized for their true history, and neither the customer nor the intermediary is held hostage to a paperwork trail that belongs to another era.
True detariffing is within reach. The Driver Report Card can ensure no good customer is left behind.
NCB is the last mile. Let us cross it.
Authored by
Sudhir Pawar
Senior Divisional Manager
Divisional Office-IV
United India Insurance Co Ltd
Ahmedabad
