Pay as you go: Irdai initiave aims to attract low-mileage car user

Under the Insurance Regulatory and Development Authority of India’s sandbox initiative, general insurance companies have started launching usage-based motor insurance policies. Companies like 

Liberty General Insurance, Bharti Axa General Insurance, ICICI Lombard and some others have started giving these innovative features under their existing private car package policies. 

“Usage-based motor insurance is based on the ‘pay as you go’ model — different from the traditional motor insurance. Through this offering, we expect increased penetration of motor insurance by covering the customers who drive less and generally may not have a preference for own damage covers (OD),’’ says Sanjeev Srinivasan, managing director and chief executive officer (CEO), Bharti AXA General Insurance. 

Offerings

When you come to the new offering with other existing products out there, you will realise that in the present, duration of the policy is monitored by ‘time’ (annual/multi-year) as scale. With the new offering, the new scale is ‘vehicle mileage during policy’. Roopam Asthana, CEO and whole-time director, Liberty General Insurance, says: “Pay for the distance feature has been developed keeping in mind car owners who use their vehicles less frequently. The new feature gives customers even more control over their insurance costs with similar coverage in terms of perils and claims service.” 

The idea behind such policies seems to be ‘lower the mileage, lower is the probability of an accident’. The new offering is currently applicable only to the OD part of the policy. Most insurers’ policies come with a top-up feature wherein you have the option of reinstating the OD coverage by increasing the number of kilometres by paying an additional premium, if your kilometre limit gets exhausted.

How is distance measured? It depends on the car you have. Asthana says, “At the time of proposal, the customer has to declare the existing odometer reading, and the same will be available in the policy schedule at the time of claims. The coverage distance can be checked, based on the odometer reading at the time of the accident and the reading collected at the time of proposal. “For newer cars, which means connected vehicles, the data is gathered using technology like telematics.

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Ankit Sachdeva, chief technology officer, Easypolicy, says: “There is a major advantage for someone who uses the car for less than 8,000 or 10,000 kilometres a year. He could get an insurance policy for significantly lower cost, at a time for certain kind of underwriting it can even be 25 -50 per cent lower of the current premium.” If you commute using cabs or public transport on a day-to-day basis and rarely use your personal vehicle or you frequently travel beyond city limits and hence, seldom use your cars, this policy makes sense. 

Adds Srinivasan: “Customers who have multiple vehicles and may not use each vehicle as much and, hence, may not have to pay a large premium amount. Through this innovative offering, we expect increased penetration of motor insurance by covering the customers who drive less and generally may not have a preference for own damage covers.’’ Keep in mind that these offerings are part of the sandbox initiative. 

For some reason, even if the initiative is dropped in future, the insurer will pass on the benefits which you have been promised. But do check out the policy’s terms and conditi­ons. 

Yes, there could be privacy concerns for customers when companies use telematics, as it will gather data regarding location, driver’s behaviour and other factors. But there’s also a social/environmental advantage if there is a significant adoption of this type of policy — it encourages people to use cars less, and not to exceed the mileage limit.