You may have driven your car less in the past one year, because of the restrictions imposed by the Covid pandemic. Even though the rules did ease up gradually, you might be wondering if you could reduce your insurance premiums now, as you don’t drive that often. Obviously, it would help you save some money.
Apparently, many people are not using their vehicles that much, and so would be less inclined to pay the full premium on the vehicle. This is precisely why usage-based insurance is gaining momentum, and it is increasingly being adopted by insurers.
The Insurance Regulatory and 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 (PAYD) and pay how you drive (PHYD), allowing vehicle owners to decide how much to pay on their car insurance.
Having said that, it is important to understand the concept of usage-based car insurance.
Usage-based insurance calculates your insurance premium depending on your driving rather than charge you a fixed amount as in a conventional car insurance policy. Distance travelled as well as your driving behaviour are the two important factors that decide your car insurance premium.
“The insurer uses data, such as driving speed, acceleration rate, braking pattern, and whether you use the phone while driving, to calculate insurance premium. Such insurance rewards good driving behaviour and lets you save on premiums if you don’t drive your car often,” according to a recent report by HDFC Ergo, a general insurance company.
Usage-based car insurance made a debut more than a decade ago in Europe and North America. Driving information is accessed online or on apps, which allows customers to monitor their driving patterns and improve their driving habits to earn discounts on insurance premium. Insurance companies offer mileage-based, as well as driving habits-related discounts.
Usage-based insurance is alternatively called pay as you drive (PAYD) and pay how you drive (PHYD). All the data that telematics will transmit to the insurance company will power greater data analytics and offer the driver and/or owner insurance options, such as manage how you drive (MHYD).
UBI uses a telematics device, installed in the car, to track how the car is driven. Telematics uses telecommunication and informatics to track and share driving data. It uses advanced analytics to record driving information, such as speed, braking, acceleration, and frequency of usage. The insurance company uses this information to analyse driving behaviour to determine the risk profile of the driver, which helps in calculating the premium. A safe driver pays a lower premium compared to a rash driver.
The car insurance company tracks the driving pattern, including driving data, to prepare reports to determine the car driver and/or owner’s profile using one of the following ways: telematics device; on-board diagnostics sensors; plug-in device, GPS device; and mobile app.
Says Sanjay Datta, chief - underwriting, claims and reinsurance, ICICI Lombard: "For capturing driving behavior, an on-board-diagnostic (OBD) device, also referred to as telematics device, is fitted to the car. Currently several of the recently launched models come with “connected-car” feature which can also be used to capture driving behavior. Certain other factors like kilometers clocked can be derived from the OBD device or also from the odometer reading available in the car."
There are mainly three types of UBI: namely, pay as you drive, pay how you drive, and pay as you go (PAYG). The third type is the combination of the above two types.
According to Ashwini Dubey, head- motor insurance, Policybazaar.com, the pay as you drive motor insurance is an optional policy that charges a premium based on the distance or duration the vehicle has driven. “This will help in reducing premiums for most of the customers, especially if a customer has more than one car, or if they are not driving regularly amid work-from-home culture,” he says.
According to a recent report by ICICI Lombard, a general insurance company, PAYD aims at using technology and/or telematics devices to monitor how often the car is used depending on the total number of kilometres or distance driven. Some of the features of PAYD are:
- The policy tenure for usage-based car insurance is for one year
- Affordable as compared to a regular motor insurance policy
- Third-party premium can be charged under the same policy
- Own-damage premium is tied to the distance or duration the vehicle has covered
- One can opt for add-ons like zero depreciation cover, engine protection cover, and return to invoice cover to this policy.
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 lesser you pay.
The telematics device uses GPS technology to calculate your driving scores, vehicle health, and other metrics to collect facts about your driving. The 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.
Rewards for safe driving: If you have a good driving record, then you can get rewarded for your driving behaviour, and can even get a customised premium rate.
Encourages better driving habits: The data recorded while driving gives important insights into your driving behaviour, and it can help you improve your driving skills and work on your mistakes.
Investigation of an accident: The telematics data can help in finding out the reason behind an accident and can help reduce accidents in the future.
Stolen vehicle recovery: It can help in the recovery of a stolen vehicle with help of location tracking.
Reduces claims fraud: It will help insurers trace fraudulent claims through the use of telematics data.
Improves customer loyalty: Customised premium rates and discounts will translate into greater customer loyalty.
Easier claims management: It will make it easier for insurance companies to manage claims, as inspection and verification will become a lot easier with tracking and recorded driving data.
