Want a lower motor insurance premium? Watch how (often) you drive

Floater policies will be cost-effective, provide convenience of renewal at one go for multiple vehicles

The Insurance Regulatory and Development Authority of India has allowed insurance companies to offer new add-on features to the own damage (OD) component of motor insurance policies. These are ‘Pay as you drive’ (PAYD) and ‘Pay how you drive’ (PHYD). It has also approved the launch of a floater motor policy.  

How premium will be determined

In the case of PAYD, premium will be based on the distance the car travels or the time period for which it is used. PHYD, on the other hand, will take into account driving behaviour.

“The premium for PAYD OD add-on cover will be directly proportional to the average distance for which the vehicle is driven in a policy period. At the proposal stage, customers will be provided the option to select the mileage. The premium will depend on it,” says Rakesh Jain, chief executive officer, Reliance General Insurance.

In PHYD, there will be no difference in premium in the first year.

“When a customer opts for this add-on cover, he/she will have to agree to share his/her driving information for the entire policy period with the insurer. The customer’s driving behaviour will be analysed and the renewal premium appropriately discounted or loaded,” says Jain.

Customers likely to benefit

While it is too early to predict the impact on premiums, experts say PAYD and PHYD are likely to prove beneficial to customers in the long run.

"The new norms are aimed at using technology to benefit customers. They are likely to result in reduced premiums for most customers. Since they are optional add-ons, premiums will only get impacted for customers who opt for them," says Ashwini Dubey, head-motor insurance renewals, PolicyBazaar.

According to Jain, opting for PAYD add-on will benefit customers who use their vehicles less.

PHYD, according to him, will help those who take care of their vehicles, follow traffic rules, and maintain good driving behaviour.

Traffic violations, rash driving, and speeding could result in a higher premium.

Role of no-claim bonus (NCB)

One question customers are likely to ask is whether PAYD will impact NCB, which also rewards good driving. NCB is a benefit given to customers for not making any claim in the previous policy period. 

“The NCB offering and handling will remain unchanged for both add-on covers. However, it might get impacted under one condition — if the initially selected kilometres under the PAYD add-on cover get exhausted before the policy end date and the customer does not opt for an appropriate top-up,” says Jain.

Rakesh Goyal, director, Probus Insurance Broker, says NCB can be used by customers to get additional discounts.

“PAYD will eliminate the standard premium criteria applicable otherwise. The existing NCB discount can be used to get the OD premium reduced further,” says Goyal.

Floater policy: All-in-one coverage

A floater motor policy will benefit customers who own multiple vehicles.

“This policy is aimed at lowering the aggregate premium of customers who own multiple vehicles. The benefits accumulated in one policy can be extended to multiple vehicles. Since this is a first-of-its-kind option, the extent of reduction in the premium amount is yet to be seen and will depend on the product construct,” says Dubey.

Goyal feels the floater option will encourage even those who avoided purchasing OD covers to buy one.

“A floater policy is likely to make premiums reasonable. It will encourage customers who ignore the OD cover and purchase just the third-party cover to buy the former,” he says.

Will the trio sync?

Will the floater policy sync with PAYD and PHYD to provide greater benefits? Experts answered in the affirmative.

“Generally, people with multiple cars tend to have a primary vehicle and a secondary vehicle. Typically, the second vehicle is driven much less than the primary vehicle. In such instances, these new options could help reduce the premiums for the secondary vehicle. Much will, however, depend on the way products are constructed,” says Dubey.
 

SLICING AND DICING CUSTOMERS BY USAGE, BEHAVIOUR
· Currently, motor insurance customers are not rewarded if they use their vehicles sparingly, or drive them more carefully
· ‘Pay as you drive’ will benefit car owners who use their cars less
· ‘Pay how you drive’ will reward conscientious drivers who don’t violate traffic rules
· Floater policies may result in even those customers, who currently opt for only third-party covers, to opt for own damage cover