Hyderabad: At a time when the coronavirus pandemic has restricted movement across the country, with factors like social distancing and work-from-home keeping people away from roads, launching a car insurance policy that charges a premium based on the extent of its usage, or the number of kilometres driven, seems like a tailor-made product.
The ‘Pay-as-you-drive’ policy is a comprehensive own damage (OD) and third-party (TP) car insurance plan that has been launched on a pilot basis for one year as part of the Insurance Regulatory and Development Authority of India’s (IRDAI’s) regulatory Sandbox. A regulatory sandbox is a framework that allows innovators and companies to conduct live experiments in a controlled environment under a regulator’s supervision.
In this case, IRDAI has allowed insurers to sell up to 10,000 usage-based car insurance policies in six months. Companies can then assess the performance of the product and decide whether it wants to make it a regular policy.
The usage-based car insurance plan will ask policyholders to declare the distance they expect to travel in the policy year at the time of purchase and premiums will be charged accordingly, as against a regular car insurance policy where premiums are charged for a standard one-year comprehensive coverage depending on factors like the make, model and age of the car. The policy is catching attention as insurers are offering premium discounts on the ‘own damage insurance’ in the range of 5-25%, with higher discounts being offered to those who drive less.
That’s the key idea: The one who drives more should pay more. PolicyX.com’s CEO Naval Goel seemed optimistic about the product. Talking to ETV Bharat, he said: “I think it will be beneficial for some users… It might be the case that heavy users are made to pay more for their insurance. This product is still at a nascent stage and its success will depend on lots of factors. (However) consumers usually tend to benefit whenever there is innovation in products.”
To understand the product better and assess its benefits and drawbacks, here’s a look at some the key features one should know about the ‘Pay-as-you-drive’ car insurance policies:
How does the policy work?
Under the ‘Pay-as-you-drive’ policy, insurers will ask policyholders to choose a usage slab option as per the kilometre that the car is likely to cover in one year. The slab may start from 2,500 km and can go up to 20,000 km per year depending on the insurer. The premium for the OD cover is then fixed based on the slab selected and the add-ons, while the mandatory TP coverage stays standard.
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Some policies are letting people pay premiums only on the days they use their cars. One can simply ‘switch on’ and ‘switch off’ their insurance through an app, with premiums being calculated based on the age and experience of the driver. The option of floater policies is also available that gives users the flexibility to secure multiple vehicles with single OD cover.
How will insurance companies track distance?
Insurers are either installing a telematics device in the car insured, or are relying on odometer readings or specifically-designed apps to keep a track on distance.
What if you exceed the kilometres travelled before expiry of the policy?
The OD cover will cease to exist once you have exhausted your user limit, but the TP cover will continue to remain active till the policy expires. You can also recharge your usage limit by buying top-ups, or move to a higher kilometre usage slab by paying the difference in the premium amount.
Which insurers are selling this product and where?
Leading insurers like ICICI Lombard, Edelweiss General Insurance, Bharti Axa General Insurance, TATA AIG General Insurance and Bajaj Allianz General Insurance are selling these policies, but only on digital platforms.
What are the potential challenges the ‘Pay-as-you-drive’ policies may face?
One, insurers may struggle with a fool-proof way of calculating the distance a vehicle has travelled given the fact that tampering of odometers or apps is technically possible. Also, pricing the product can be a challenge for insurers in the long run since premium would be dependent on a lot of dynamic data like driving behaviour etc.
(ETV Bharat Report)
