New Car Insurance Plan: Premium Based on Usage, Driving Behavior

With the Insurance Regulatory and Development Authority of India (IRDAI) on Wednesday allowing general insurance companies to introduce technology-enabled ‘pay-as-you-drive’ and ‘pay-as-you-drive’ concepts for ‘own damage (OD) cover’ , vehicle owners can now buy cheaper insurance policies based on their driving behavior, general vehicle maintenance, mileage and usage pattern.

In the case of ‘pay as you drive’, as the policy is valid for a certain 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 kilometers they drive their vehicle, then he/she can opt for that cover.

A person who owns more than one vehicle can also purchase an additional motor cover on a floating basis.

“The purpose of such covers is that car insurance essentially becomes more affordable, especially for those customers who mostly opt for third party only covers and overlook the benefits of OD covers. Initiatives like these are a push in the right direction to increase the much-needed car insurance penetration in India,” said TA Ramalingam, Chief Technical Officer, Bajaj Allianz General Insurance.

This will give lower mileage drivers more transparency and control over their car insurance. “We have been testing the pay-as-you-drive product concept within the regulatory environment and are excited about the opportunity. Further, the introduction of additional coverages will also act as a catalyst to deepen insurance penetration in the country,” said Udayan Joshi, President, Insurance & Reinsurance, Liberty General Insurance.

With the concept of “pay as you drive”, the insurance premium depends on the way the person drives his/her car – the premium is lower if he/she uses the car in a better, more efficient and safer way.

Some insurance companies have already developed products based on the new concepts. These products will need telematics, a combination of telecommunications and information that is used to track data related to driving, including the storage and transfer of information.

Telematics uses devices that help track driving habits. The installation of the device is included in the policy and can help the customer as well as the insurance company to monitor their driving habits. Using these monitoring tools can help improve road safety for the customer and other vehicles. Also, using this data, the insurance company can recommend better plans that offer comprehensive coverage, depending on usage.

“The new move will encourage people to take care of their vehicles, obey traffic rules and maintain good driving behavior,” said Rakesh Jain, CEO, Reliance General Insurance.

There is currently single price fairness for motor cover due to lack of insurance premium pricing based on consumer behaviour. The new concepts will make it cost-effective for low-use customers, especially those who drive less than 10,000 km per year, as well as those who drive more safely and efficiently.

“On the other hand, such a move would eliminate the cross-subsidy currently enjoyed by high-usage customers, which would likely result in slightly higher premiums for this group.” How this complicates claims will become clear once insurers release details of the product. Overall, they seem to be encouraging good driving and usage-based pricing, which should bode well for the customer,” said Susheel Tejuja, founder and MD, (Landmark Insurance Brokers).

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

Insurance companies mobilized a total premium of Rs 70,432 crore, an increase of 3.98 percent, in the motor vehicle category in the year ended March 2022, according to General Insurance Council data.

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