Gone are those days when you had to pay a fixed yearly premium for your motor insurance policy. You can now buy a policy that charges you a premium based on your vehicle usage or driving behaviour.
The Insurance Regulatory & Development Authority of India (IRDAI) has permitted general insurance companies in India to launch telematics-based motor insurance covers such as Pay as you drive and Pay how you drive, allowing vehicle owners to decide how much to pay for their insurance.
By utilizing technology's ability to transmit accurate data on vehicle location and driving behaviour, IRDAI's new rule is a welcome move as it creates a win-win situation for both insured and insurers in India.
What is pay as you drive & pay how you drive add-on covers?
Unlike any other car insurance policy in the market, these new policies are built to give you more control over your motor insurance costs. It allows you to prove you are a safe driver, and as a result, you can be rewarded with lower insurance prices on renewal. The lesser/ better one drives, the lower premium they will have to pay.
These insurance add-ons also enable insurance companies to offer reduced average pricing, appeal to low-risk individuals, reduce claims management costs, and improve the overall customer experience.
How do these add-ons work?
This type of add-on works differently if you opt for a pay-as-you-drive or driving behaviour-based cover.
Pay as you drive
Pay-as-you-drive cover operates on the simple rule that you should pay less for insurance if you drive less. Since you are not out on the road often, you have a low accident risk, and your insurance bill should reflect the same.
This type of insurance allows you to insure your car based on the kilometres you drive in a year. Depending on your driving needs, you can opt for a mileage plan between 3000 to 10,000 km/year. If you exceed the kilometres of your plan, you also have the option to top up your insurance coverage with more kilometres for that particular policy year.
According to a survey conducted by Feedback Consulting, 75% of Indian commuters travel less than 1,000 km a month (or roughly less than 35 km a day), and most people simply travel from home to office. The Pay-as-you-drive add-on guarantees policyholders do not have to pay a huge premium as on the make and model of the car but rather on how much they use their vehicle
Pay how you drive
The premium for Pay how you drive cover is calculated based on how you drive your car while on the road. The better and safer you drive, the less you pay.
The telematics device uses GPS technology to calculate your driving scores, vehicle health and other metrics to collect facts about your driving. This information collected is then used to calculate a driver score that is unique to you.
If it's good, you could reduce your insurance premium at the time of renewal and get a thumbs up for safe driving. While there are no penalties yet for low driving scores, the premium discounts these drivers can avail of are also very low. Drivers can also use these scores to improve their driving and build better habits.
Benefits of paying as you drive
There are multiple benefits of using a pay-as-you-go or pay-as-you-drive option:
- Cost savings: If you are a low-mileage driver, PAYD can significantly lower your insurance premium.
- Customisable plans: Choose coverage that reflects how much you drive.
- Promotes safe driving: PHYD incentivises cautious and efficient driving by linking it to savings.
- Transparency: Your car insurance plan becomes more tailored and transparent, with usage-based metrics.
- Ideal for city dwellers or multiple vehicle owners: People who use their cars occasionally can avoid paying premiums based on inflated risk estimates.
Who should consider buying pay how you drive cover?
Many drivers may benefit from a behaviour-based telematics car insurance cover if they drive safely and avoid accidents. This cover especially makes sense for demographic groups that are charged above-average premiums, such as:
- Car owners living in metros
- Drivers residing in high-accident-prone or high-crime areas
- Car owners who wish to drive more safely and improve their savings on insurance
Who should consider buying Pay as you drive cover?
The pay-as-you-drive cover is a good fit for:
- Retirees
- Employees who work from home
- City residents who mostly use public transit
- Owners of a vehicle only driven occasionally
- Owners of multiple cars, with some of those driven occasionally
- Anyone who drives less than 35 miles a day
How much can I save with pay-as-you-drive insurance?
Since standard car insurance premiums depend on geography, make-model, and age of the vehicle and are not based on their usage, most car owners who opted for Pay as you drive policy saved on their premiums.
Our experience with the Pay as you drive policy under the Sandbox regulation in 2020 also helped us learn that 56% of customers chose to Pay as you drive over conventional insurance due to its cost-effectiveness and usage-based premiums. In comparison, 22% bought this policy due to its telematics benefits.
Conclusion
While PAYD & PHYD can help many save on their premiums, sometimes, you may not see a discount even if you are a good driver. If you commute to distant locations for work every day and drive above the average speed often, you're more suited for a standard insurance plan.
These add-ons are suitable for customers with multiple or expensive cars looking for a motor policy that gives them more control over how much they spend on insurance every year. If you are looking for smarter, more flexible coverage under your comprehensive car insurance, consider switching to these usage-based models. You will not only save money but also contribute to a more responsible driving culture.
Disclaimer: The information provided in this blog is for educational and informational purposes only. It may contain outdated data and information regarding the Insurance industry and products. It is advised to verify the currency and relevance of the data and information before taking any major steps. ICICI Lombard is not liable for any inaccuracies or consequences resulting from the use of this outdated information.