The concept of a no-claim bonus

By Elvin Bailey

Like many nationals and residents of the Federation, I drive a vehicle. I have been driving for almost 30 years without being involved in a collision that would require discussion with my insurer. It is assumed therefore that the risk of my becoming involved in a major collision is reduced, and so I enjoy a no claim bonus. The premium that I pay is adjusted each year (presumably because of other people’s collisions), the value of the old vehicle is also adjusted, the premium is determined and then the discount is applied. I do not get money back – I simply pay a “discounted” amount.

Some insured persons want Social Security to operate the same way. But it cannot. It should not.

In 2009, 7,471 of our insured persons experienced loss in their wages caused by sickness, or pregnancy, or injury; or loss of income caused by death of kin, and made claim on Social Security. Those who claimed submitted 11,429 claims. The remainder of us (excluding the 3,730 or so who are pensioners of all kinds) had no loss of wages nor income and had no need to claim. To be sure, some of the non-claiming folks have never ever claimed from Social Security while for others, it may have been their first time for a clean sheet.

All of us have become older, some of us have even added wisdom to our years. But it is an established fact that the longer one stays in the workforce, and in particular, the longer one stays in the same job the better the pay will be. As we become more efficient, we should be rewarded with either an increment or a promotion. It is also an established fact that increments in and of themselves add 3-4% to wages. Here then is the first reason against the concept of a no claim bonus; Social Security cannot devalue any of us. In fact, we have become more costly to employ, even if we have not reached the ceiling of EC$6,500.00 per month on which Social Security deductions are based (I am repeating myself here). 

If we apply the principle of the no claim bonus, we would have to adjust each person’s premium based on the risk posed by those persons who have claimed. That is, we would have had to allow for EC$9,432,836 (unaudited) worth of adjustment, because that is what we paid in short term benefits as described before. My expertise does not allow me to calculate how much such an adjustment would amount to, so I will just leave that alone, except to say that this is a second argument for avoiding the no-claim concept. 

Most persons who requested some form of no-claim bonus seem to expect that it should come in the form of a monetary payment. But note that the with the car insurance, there is no rebate, but rather a discount. Indeed, because we are based on the principles of solidarity, equity and universality, nobody pays the full cost of insuring anybody; rather each of us pays the cost for helping all of us who need help at the time that it is needed.
It is safe to say therefore that the discount has already been applied.

If ever I make a claim on my car insurance, I know that my bonus will disappear, and my premium will return to “market” rates. Not so at Social Security, or else the 3,100 persons who made more than one claim for 2009 would have been in deep trouble (one person made 20); them and their employers. This has been one of the strong selling points of our system: the fact that short term claims do not negatively impact your long term entitlement - and you actually get contributions credited while claiming. It was also a controversial issue during reform discussions.

To my mind, the no-claim concept is a strategy for increasing premium payments for the same or lesser coverage. It is a very ingenious strategy. Our ingenuity at Social Security is targeted elsewhere: at compliance, at public education, at poverty reduction, at national development, at providing safety nets.  

Your Social Security is a not-for-profit organization, and even if it was, whatever profit made would have been yours. Can you say the same for your vehicle insurance provider?

Finally, the thought for today and next week is: Be careful what you ask for, you might not be able to handle it!