No-claims discount

In 1976, a standard clause annexed to article A. 121-1 of the French Insurance Code imposed the same reduction and increase coefficient on every French motor insurer. It answers a limit of a priori rating, which observes characteristics but not carefulness: two drivers of the same age, vehicle and territory do not carry the same risk, and the no-claims discount captures that residual gap by charging policyholders according to what they have done. The mechanism works on two registers. It corrects heterogeneity that a priori criteria never reach, which makes it a direct application of credibility theory, with the discount class playing the role of the Z factor. It also creates an incentive, since a reported claim costs the deductible plus several years of surcharge; moral hazard recedes and, as a less desired effect, small claims stop being reported. Designing a scale means setting how severe the surcharge is, how fast the scale comes back down after a clean year and whether discount protection exists. France chose a uniform rule, while other European markets let each insurer define its own scale, which makes cross-border premium comparison misleading.