How your car insurance will factor in your driving behaviour


On Wednesday, the Insurance Regulatory and Development Authority of India (IRDAI) allowed general insurance companies to introduce new technology-enabled concepts — called “pay as you drive”, “pay how you drive” and floater cover for multiple vehicles — as part of the motor insurance package.

The new concepts will enable vehicle owners to take advantage of their driving behaviour patterns, general upkeep of the vehicles, mileage and vehicle usage patterns, leading to cheaper insurance policies for their vehicles.

What do they mean?

PAY AS YOU DRIVE: The customer would be required to pay as per his or her usage. This cover may be defined as per the approximate declaration of the customer in terms of planned usage in the cover year and can be tracked using technological support — an app with geo tagging. However, the insurers would also have to clarify the process of settling a claim in event of the customer exceeding the declared usage.

PAY HOW YOU DRIVE: Conventionally, customers get a discount in the event of not reporting any claim in a coverage year. Now the customer may opt for live tracking of their driving behaviour in terms of speed and usage, which can be utilised by the insurer to provide the customer with better or dynamic pricing in terms of premium. The customer will be provided with a technological tool or device to track this behaviour by the insurer.

FLOATER COVER: As in the case of floater policies in health insurance, IRDAI has now proposed that in case the individual customer owns more than one vehicle (two- wheelers or four-wheelers), insurers can provide the customers the flexibility to cover all their vehicles under one policy. “This may also facilitate the customer with attractive pricing and convenience in terms of having one policy for multiple vehicles,” said Supriya Rathi, Whole Time Director, Anand Rathi Insurance Brokers.

What role does technology play?

These products will need Telematics, a mix of telecommunications and informatics that is used to keep track of driving-related data, including storage and transfer of information. Telematics makes use of devices that help in tracking driving habits. The device, whose installation is included under the policy, will enable the customer as well as the insurance company to monitor driving habits. Using these monitoring tools can also help in increasing road safety for the customer as well as other cars. Also, using such data will enable the insurance company to recommend better plans that offer a comprehensive cover depending on usage. “The new move will encourage people to take care of their vehicles, follow traffic rules and maintain good driving behaviour,” said Rakesh Jain, CEO of Reliance General Insurance.

What are the benefits for customers?

Currently, there is uniform price for motor cover due to lack of user behaviour-based pricing of insurance premium. The new concepts will make it cost-effective for low-usage customers, especially those who drive less than 10,000 km a year, and how safely and efficiently they use their vehicles.

“On the flip side, such a move will eliminate the cross-subsidy currently enjoyed by high-usage customers, possibly resulting in slightly higher premiums for this set. How it adds to complexity in claims will emerge once insurers release product details,” said Susheel Tejuja, Founder and MD, (Landmark Insurance Brokers).

Further, motor insurance essentially becomes more affordable, especially for those customers who primarily opt for only third-party cover and overlook the benefits of own damage (OD) cover. Such initiatives are a push towards increasing penetration of motor insurance in India. This will give lower-mileage drivers more transparency and control over their auto insurance.

When are the changes expected?

Some insurance companies have already devised such products based on the new concepts through the Regulatory Sandbox route. “We have tested the product concept of ‘pay as you drive’ under the regulatory sandbox and feel excited about the opportunity. Further, the introduction of add-on covers such as these will also act as a catalyst in deepening the penetration of Insurance in the country,” said Udayan Joshi, President, Underwriting & Reinsurance, Liberty General Insurance.

“Insurers are expected to launch the new products in the coming weeks. However, vehicle users are expected to take some time before they understand these schemes,” said an insurance official.

IRDAI said the concept of motor insurance is constantly evolving. “The advent of technology has created a relentless pace for the insurance fraternity to rise up to interesting yet challenging demands of the millennials. The general insurance sector needs to keep pace with and adapt to the changing needs of the policyholders,” IRDAI said.

What happens if insurance companies face claims that are higher than premium mobilised?

Insurance officials say the new concepts will not be able to make any impact on the underwriting losses (higher claims than the premium mobilised). The underwriting losses of general insurance companies were at Rs 20,039 crore in 2020-21, down by 15.52% over the previous year. Insurance companies mobilised a total premium of Rs 70,432 crore, a rise of 3.98%, in the motor vehicles category during the year ended March 2022, according to data from the General Insurance Council.


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