Motor insurance becomes more affordable! Now Pay as You Drive, How You Drive

In a bid to make motor insurance more affordable as well as to increase its penetration in the market, the Insurance Regulatory and Development Authority of India (IRDAI) has allowed insurers to introduce concepts like Pay as You Drive, Pay How You Drive and Floater policies for vehicles belonging to the same individual in motor own damage policies as add-ons.

Welcoming the IRDA move, insurers said the IRDAI circular seems very customer-centric and a positive move by the regulator. While exact product details would emerge later, this should give the customer confidence and sentiment a boost.

“It is a welcome move by the Regulator, especially at a time when the pandemic has changed the way we work and travel, these add on covers will definitely appeal to the customers who are working from home more often, thus making car insurance cost effective for them. Further, this will give lower mileage drivers more transparency and control over their auto insurance,” said Udayan Joshi, President – Underwriting & Reinsurance, Liberty General Insurance.

In fact, every individual has different driving and vehicle usage patterns. With the new add-ons permit, own damage policy coverage can now be tailored based on a customer’s driving behaviour patterns, general upkeep, mileage and vehicle usage patterns to offer the best features they need.

“The premium will be determined as per an individual’s tailored coverage. Therefore, opting for Pay as You Drive or Pay How You Drive add-on in addition to the traditional policy will benefit those customers who have low vehicle usage, take care of their vehicles, follow traffic rules and maintain good driving behaviour. This will do away with “standard premium for all” practice and enable customers to avail a premium as per their usage, consumption and other requirements,” said Rakesh Jain, CEO, Reliance General Insurance.

T A Ramalingam, Chief Technical Officer, Bajaj Allianz General Insurance, observed, “Customers do not necessarily use their vehicles in a similar manner where some customers may have a lesser frequency of vehicle usage or prefer to use public transport or organizational transportation facilities. Hence, this is where I feel IRDAI’s circular on motor insurance add-ons which is principally a usage-based cover as an add-on to an OD policy that gives customers additional protection for those customers who have a lesser frequency of vehicle usage or also based on the driving pattern of the insured.”

This means, for example, that if you wish to undertake a cover based on the number of kilometers you drive your vehicle, then you can opt for this cover. With this circular, the insured can also purchase one add-on motor cover on a floater basis for multiple vehicles he owns, be it either four-wheeler or two-wheeler vehicles. “The objective with such covers is that motor insurance essentially becomes more affordable, especially for those customers who primarily opt for only TP 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,” added Ramalingam.

The introduction of such covers as ‘Pay as you Drive’ and ‘Pay How You Drive’ will nudge customers towards a utility based ‘Pay as you Use’ model, lending greater flexibility and convenience in customer choice.

“Currently, there is price equity due to lack of user behavior based pricing of insurance premium, which will change. This will make it cost effective for low usage customers, especially those who drive less than 10,000 kms a year. 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. Overall, these covers seem to encourage good driving and usage based pricing, which should augur well for the customer,” said Susheel Tejuja, Principal Officer, Founder & Managing Director – PolicyBoss.com.

AI and Data Analytics will play a major role in this and help insurers track trends augmenting product innovation. Additionally, the new move will encourage people to take care of their vehicles, follow traffic rules and maintain good driving behaviour.

Regarding the motor floater policy, the coverage will enable consumers to have a single policy for their multiple vehicles. This would ensure seamless renewal and single window communication with the insurers.

“With the new add-ons permit in motor own-damage policies, IRDAI has created a Win-Win situation. Being a futuristic GI company, we at Reliance General Insurance introduced similar concepts of Usage & Behaviour-based motor insurance offerings through sandbox products last year. Such models are cost-effective, futuristic and endorse good driving behaviour,” observed Jain.