Auto insurance

Car insurance rules change: pay premiums based on “you drive, how you drive”

Gone are the days when you had to pay a fixed premium each year for your own non-life car insurance policy. The Insurance Regulatory and Development Authority of India (IRDAI) has cleared the general insurer to introduce technology-based add-on policies for personal injury motor insurance policies based on usage and owners driving history. Soon, individuals will have the option of purchasing floating policies for multiple vehicles instead of a separate policy for each vehicle, the regulator said in a recent notification.

“…as a step towards facilitating technology coverages, IRDAI has enabled general insurance companies to introduce the following technology concepts for auto damage (OD) coverage: a) ‘Pay as you drive’, b) ‘Pay how you drive’, c) ‘Floater policy’ for vehicles belonging to the same individual owner for two-wheelers and passenger cars,” IRDAI said in a notice issued on July 6. .

As the name suggests, “Pay as you drive” coverage will allow users to pay for insurance based on usage. This coverage may be defined as the customer’s approximate statement of expected usage in the Coverage Year and may be tracked using technology such as an application with geolocation. However, insurers should also clarify the process for settling a claim in case the customer exceeds the declared usage,” explained Supriya Rathi, Full Time Director, Anand Rathi Insurance Brokers Pvt Ltd.

The “Pay how you drive” option will depend on the driving behavior of the owner. Customers will have the option to choose live tracking of their driving in terms of speed, usage and other metrics. Thanks to all this, the insurer can offer car coverage with dynamic pricing.

Similar to the floating health insurance policy, the “floating policy” for vehicles will allow people who own more than one vehicle – two-wheeler or car – to opt for a single car insurance policy that will cover all of their vehicles.

How this move will affect car insurance premiums

The introduction of these technology add-ons will bring more personalized pricing to auto insurance customers. “Currently, customers are categorized into one of many homogeneous strata and priced according to the average loss cost of that stratum. With the new add-ons offered, pricing will be more closely tied to a customer’s driving distance individual, low/high mileage and driving habits, safe/unsafe driving,” said Kunal Jha, Vice President and Head, Automotive Products and Actuarial, Digit Insurance.

After a two-year-long coronavirus pandemic, thousands of people are not driving their cars regularly. However, they still have to pay a high annual premium for their vehicles. With new guidelines from insurance regulators, these customers will have better control over the initial cost of insurance, as the premium will be based on usage.

“It’s a win-win for customers who have more than one car or who drive less. For example, if one person drives their car 200 to 300 kilometers per month and another person drives their car 1,200 to 1,500 kilometers per month, they do not have to pay the same premium under the model of ‘pay as you drive,'” said Ashwini Dubey, auto insurance renewals manager,

Similarly, between two customers who drive the same distance, for example 1,200 kilometers per year, the customer who drives more carefully will pay a lower premium than the customer who drives relatively recklessly. “Vehicles equipped with a telematics device collect a lot of valuable information from which driving habits can be determined. That said, consent would be required from the customer regarding data sharing,” Kunal Jha added.

What this means for insurance companies

“This decision will also help insurers to better select risks, as they will be able to identify good risks and unfavorable risks and, thus, price car insurance premiums more accurately,” said Pooja Yadav, Product Manager, Edelweiss General Insurance at . The use of telematics will also help insurers more accurately estimate accident damage and reduce fraud by allowing them to analyze driving data (such as hard braking, speed and time) during an accident, she added.

How these add-ons will be implemented

Add-ons will be attached to the respective base products and categorized accordingly. Further guidance is expected from the regulator on this, experts said.

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