How and how often you drive to determine your car insurance premium soon

To facilitate technology (tech)-enabled insurance covers, the Insurance Regulatory and Development Authority of India (Irdai) has permitted general insurance companies to introduce concepts like ‘pay as you drive’, ‘pay how you drive’, and floater policies for vehicles belonging to the same individual owner of two-wheelers and private cars as add-ons in motor own damage (OD) policies.

With these add-ons, the motor OD policy can be tailored, based on customer driving patterns, vehicle usage, and other parameters to offer the best features. These are expected to provide insurers with better rating parameters, helping them differentiate the good drivers from the not-so-good ones, impacting premiums accordingly.

Earlier there was no mechanism to distinguish between different categories of drivers, but now they can be singled out and customers that truly deserve a higher discount will be rewarded suitably. This is also expected to make OD covers more affordable, given most people opt for third-party (TP) liability covers as it is mandatory.

Sanjay Datta, chief-underwriting and claims, ICICI Lombard General Insurance, said, “This will help insurers by providing them with better rating parameters which will be driver-based, not asset-based. The rating parameters will help characterise good and bad drivers, based on their driving behaviour, resulting in good drivers getting a discount and the not-so-good ones having higher premiums. These add-ons will benefit policyholders who drive carefully or drive sparingly.” 

The concept of ‘pay as you drive” stems from the fact that policyholders will be charged premiums based on vehicle usage.

Similarly, ‘pay how you drive’ follows the concept of customers paying premiums on the basis of their driving standards.

Further, floater policies for single owners of two-wheelers and private cars are aimed at reducing the inconvenience to vehicle owners, so that they do not have to buy separate policies for all their vehicles.

Irdai’s circular on motor insurance add-ons is principally a usage-based cover as an add-on to an OD policy that gives additional protection to customers based on their driving pattern and to those who have a reduced frequency of vehicle usage, said T A Ramalingam, chief technical officer, Bajaj Allianz General Insurance.

“The objective with such covers is that motor insurance becomes more affordable, especially for those customers who primarily opt for only TP covers and overlook the benefits of OD covers,” he added.

Rakesh Jain, chief executive officer (CEO), Reliance General Insurance, said, “This will do away with standard premium-for-all practice and enable customers to avail of a premium according to usage and consumption. Artificial intelligence and data analytics will play a major role and help insurers track trends, augmenting product innovation. Additionally, the new move will encourage people to take care of their vehicles, follow traffic rules, and maintain good driving conduct.”

Concepts like ‘pay as you drive’ and ‘pay how you drive’ in motor insurance are quite popular in other markets, although they are yet to take off in India, said Subramanyam Brahmajosyula, head-underwriting and reinsurance, SBI General Insurance.

“With the regulator now taking a proactive step in encouraging insurance companies to file these add-ons, customers will stand to benefit since it will bring in an element of customisation and flexibility to motor insurance, together with the possibility of lower premiums,” he said.  

‘PAY AS/HOW YOU DRIVE’ STEERS FUTURE OF MOTOR INSURANCE

• Own damage policy can now be tailored, based on driving pattern and vehicle usage
• It will do away with the standard premium-for-all practice
• Motor insurance covers will also become more affordable now 
• Insurers will have better rating parameters — they will be driver-based, not asset-based
• It will help them differentiate the good drivers from the bad ones on the basis of driving behaviour
• Good drivers may get a discount; the not-so-good ones may have to pay higher premiums

According to the insurance regulator, the concept of motor insurance is constantly evolving. The advent of tech has created a relentless pace for the insurance fraternity to rise up to interesting yet challenging demands of millennials. The general insurance sector needs to keep pace with and adapt to the changing needs of policyholders. The introduction of such add-on options will aid in giving the much-needed fillip to motor OD insurance in the country and increase its penetration.

‘Pay as you drive’ includes covers where the insurance costs may depend not just on how much we drive but how, where, and when we drive. How we drive may also help us to significantly lower our car insurance costs.

‘Pay how you drive’ monitors a few factors (time of day, speed, acceleration, and braking) to capture our driving habits over a defined short period.

“These features grade us to produce a score to apply to our premium rates,” said Sharad Mathur, managing director and CEO, Universal Sompo General Insurance.

Currently, motor insurance covers are of two types — comprehensive insurance and TP liability insurance. A comprehensive vehicle insurance plan includes TP liability, as well as an OD cover, which covers any expense incurred by the policyholder due to vehicle theft or accident.

The benefit of taking a comprehensive motor insurance policy is that the add-on plans or riders extend added benefits to the policyholder without taking multiple policies. TP liability insurance is mandated by law for every vehicle owner. It protects the policyholder’s interests from damages caused to property or an individual by the policyholder.