How your car insurance will take into account your driving behavior
On Wednesday, the Insurance Regulatory and Development Authority of India (IRDAI) authorized general insurance companies to introduce new technological concepts – called ‘pay as you drive’, ‘pay how you drive’ and floating cover for multiple vehicles – as part of car insurance package.
The new concepts will allow vehicle owners to take advantage of their driving habits, general vehicle maintenance, mileage and vehicle usage patterns, resulting in cheaper insurance policies for their vehicles.
What do they mean?
PAY AS YOU DRIVE: The customer would be required to pay according to his usage. This coverage can be defined according to the customer’s approximate statement in terms of expected use in the year of coverage and can be tracked using technological support – an application with geolocation. However, insurers should also clarify the process for settling a claim if the customer exceeds the declared usage.
PAY HOW YOU DRIVE: Typically, customers benefit from a discount in the event of no claim being made during a year of coverage. Now, the customer can opt for live tracking of their driving behavior in terms of speed and usage, which can be used by the insurer to provide the customer with better or dynamic pricing in terms of premium. The client will be provided with a technological tool or device to track this behavior by the insurer.
FLOAT COVER: As with floating policies in health insurance, IRDAI has now proposed that where the individual customer owns more than one vehicle (two or four wheels), insurers can offer customers the flexibility to cover all their vehicles under one policy. “It can also facilitate the customer with attractive pricing and the convenience of having one policy for multiple vehicles,” said Supriya Rathi, Full-Time Manager, Anand Rathi Insurance Brokers.
What role does technology play?
These products will require telematics, a mix of telecommunications and computing used to track driving data, including the storage and transfer of information. Telematics uses devices that help track driving habits. The device, the installation of which is included in the policy, will allow the customer as well as the insurance company to monitor driving habits. Using these monitoring tools can also help increase road safety for the customer as well as other cars. Additionally, using this data will allow the insurance company to recommend better plans that provide comprehensive coverage based on usage. “The new ruling will encourage people to take care of their vehicles, follow traffic rules and behave well while driving,” said Rakesh Jain, CEO of Reliance General Insurance.
What are the benefits for customers?
Currently, there is a uniform price for automobile coverage due to the absence of insurance premium pricing based on user behavior. The new concepts will make it profitable for customers with low usage, especially those who travel less than 10,000 km per year, and the safety and efficiency with which they use their vehicles.
“On the other hand, such a move will eliminate the cross-subsidy currently enjoyed by high-use customers, which could result in slightly higher premiums for this set. How this adds to the complexity of claims will become apparent once insurers will have published product details,” said Susheel Tejuja, founder and managing director of PolicyBoss.com (Landmark Insurance Brokers).
Additionally, car insurance is essentially becoming more affordable, especially for customers who primarily opt for third-party only coverage and overlook the benefits of personal damage (OD) coverage. Such initiatives are a push towards increasing penetration of motor insurance in India. This will give low mileage drivers more transparency and control over their car insurance.
When are the changes expected?
Some insurance companies have already designed such products based on the new concepts via the Regulatory Sandbox route. “We tested the ‘pay as you drive’ product concept as part of the regulatory sandbox and we are excited about the opportunity. Furthermore, the introduction of supplementary covers such as these will also act as a catalyst to deepen insurance penetration in the country,” said Udayan Joshi, President, Underwriting and Reinsurance, Liberty General Insurance.
“Insurers are expected to launch the new products in the coming weeks. However, vehicle users should take some time to understand these schemes,” an insurance official said.
According to IRDAI, the concept of car insurance is constantly evolving. “The advent of technology has created a relentless pace for the insurance fraternity to meet the interesting yet challenging demands of millennials. The general insurance industry must keep pace and adapt to the changing needs of policyholders” , said the IRDAI.
What happens if insurance companies face claims that exceed the mobilized premium?
Insurance managers claim that the new concepts will have no impact on technical losses (claims greater than the premium mobilized). Underwriting losses of general insurance companies amounted to Rs 20,039 crore in 2020-21, down 15.52% from the previous year. Insurance companies mobilized a total premium of Rs 70,432 crore, up 3.98%, from the motor vehicle category in the year ended March 2022, according to data from the General Council of Insurance. insurance.