New car insurance plan: Premium based on usage, driving behaviour


WITH THE Insurance Regulatory and Development Authority of India (IRDAI) on Wednesday allowing general insurance companies to introduce tech-enabled concepts of “pay as you drive” and “pay how you drive” for “own damage (OD) cover”, vehicle owners can now buy cheaper insurance policies based on their driving behaviour, general upkeep of vehicle, mileage and usage pattern.

In the case of ‘pay as you drive”, as the policy is valid for a specified number of kilometres, the premium will be lower than standard plans for those who use their vehicles infrequently. If a customer wants an insurance cover based on the number of kilometres he/ she drives his vehicle, then he/ she can opt for this cover.

A person who owns more than one vehicle can also purchase an add-on motor cover on a floater basis.

“The objective of such covers is that motor insurance essentially becomes more affordable, especially for those customers who primarily opt for only third-party covers and overlook the benefits of OD covers. Such initiatives are a push in the right direction in increasing the much-needed penetration of motor insurance in India,” said T A Ramalingam, Chief Technical Officer, Bajaj Allianz General Insurance.

This will give lower-mileage drivers more transparency and control over their auto insurance. “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 will also act as a catalyst in deepening the penetration of insurance in the country,” said Udayan Joshi, President, Underwriting & Reinsurance, Liberty General Insurance.

In the ‘pay how you drive’ concept, the insurance premium depends on the way the person drives his/ her vehicle – the premium is lower if he/ she uses the vehicle in a better, more efficient and safer way.

Some insurance companies have already devised products based on the new concepts. These products will need telematics, a mix of telecommunications and informatics which 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 installation of the device is included under the policy and can help the customer as well as the insurance company to monitor driving habits. Using these monitoring tools, it can help to improve road safety for the customer and other vehicles. Also, using this data, the insurance company can recommend better plans which offer 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.

Currently, there is uniform price equity 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, as well as those who drive more safely and efficiently.

“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 group. How it adds to complexity in claims will emerge once insurers release product details. Overall, these seem to encourage good driving and usage-based pricing, which should augur well for the customer,” said Susheel Tejuja, Founder and MD, (Landmark Insurance Brokers).

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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.

Insurance companies mobilised a total premium of Rs 70,432 crore, an increase of 3.98 per cent, in the motor vehicles category during the year ended March 2022, according to the General Insurance Council data.


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