Looking to buy a new car insurance policy or renewing your existing one? The master circular issued by the Insurance Regulatory and Development Authority of India (IRDAI) in June had some important guidelines that will help you.
IRDAI asked insurance companies to offer two options as first choice under motor insurance. One of the options was 'pay-as-you-drive' insurance cover.
As the name suggests, you pay premium on the motor insurance based on how much or how you drive rather than paying a flat fee. This is a comprehensive own-damage plus third-party motor insurance policy. The third party premium will continue to be determined by existing rules, but the own-damage premium is based on the number of kilometres that you drive. So, if you drive less, you pay less.
A few companies now offer this as an add-on cover. For instance, if you are driving less than 10,000km a year, HDFC Ergo lets you claim benefit up to 25 per cent of the basic own damage premium at the end of the policy year. When the policy expires, subject to providing distance travelled, one can claim the benefit.
Some companies also offer the 'pay-how-you-drive' option, where the premium is calculated based on how you drive your car. The safer you drive, the lower will be the premium.
Telematics and usage driven motor insurance offers several other benefits as well. “It offers feedback on driving habits, which can help improve driving behaviour and potentially increase safety,” said Shashi Kant Dahuja, executive director and chief underwriting officer at Shriram General Insurance. “Also, in the event of a claim, detailed data can help provide a clearer picture of what happened, leading to faster resolution.”
Shriram General Insurance offers pay as you drive as a usage-based add-on cover, under which the insured can get a discount on own damage premium. “To avail the benefit, at the time of policy inception, the insured need to declare the maximum kilometres the vehicle will run as per the opted kilometre plan,” said Dahuja.
Zuno General Insurance (formerly Edelweiss General Insurance) recently launched a usage based add-on option for its motor insurance customers, where, the user driving behaviour is analysed based on data collected through mobile telematics on the company's app. The policy holder can assess her driving skills and generate a points-based score. Based on the score, she can get a discount on insurance premium at the time of renewal. Shanai Ghosh, MD and CEO of Zuno General Insurance, said a policyholder could save up to 30 per cent on the premium, depending on the score.
According to a report by Fortune Business Insights, the global insurance telematics market was valued at $4.33 billion in 2023 and it is projected to grow to $5.03 billion in 2024 and $19.23 billion by 2032. In India, it is still at a nascent stage, though. “The starting point of telematics was that you had to pay extra for a device and you had to install it in your car. Both were barriers to adoption,” said Ghosh.
Dahuja said data privacy and security are also a concern among customers. “The collection and handling of personal and vehicle data raise privacy concerns among consumers. There may be apprehensions about how data is used and who has access to it.” Ensuring compliance with data protection regulations and addressing privacy concerns are crucial for insurance companies to gain customer trust, he said.
Modern cars have advanced technology features on board. By harnessing the data from these features, insurers can improve risk assessment, streamline claims management, offer personalised coverage and develop innovative insurance products, he added.
While such data- and usage-based motor insurance products were slow to take off, the Covid-19 pandemic gave it some boost. As remote work and work from home gained ground in many sectors, pay-as-you-drive plans started gaining popularity among hybrid/remote workers. Homemakers and those with more than one car are also attracted to this, according to an analysis by insurance distributor PolicyBazaar. Hybrid/remote or work-from-home employees account for 35 per cent of the pay-as-you-drive customer base.
“Hybrid/remote workers are more inclined towards distance slabs of 5,500km (33 per cent), 7,500km (29 per cent), and 2,500km (21 per cent). These choices reflect a mix of moderate to low annual mileage, aligning with the reduced commuting needs of remote workers,” said the report. These customers are predominantly located in cities like Bengaluru, Gurugram, Delhi, Pune and Hyderabad, which are the major tech hubs.
Homemakers make up around 15 per cent of the pay-as-you-drive customer base and households with multiple cars account for 25 per cent.