Insurance policies

IRDAI allows “sophisticated” usage-based add-ons to basic auto insurance policies

The country’s insurance regulator, the Insurance Regulatory and Development Authority of India (IRDAI), has authorized general insurance companies to introduce technological concepts for engine damage (OD) coverage to offer customers usage-based insurance coverages in addition to Motor OD’s base policies.

In issuing a circular on Wednesday, the regulator said the concept of car insurance is constantly evolving and that as a step towards facilitating technology-enabled covers, it allows general insurers to introduce add-ons sophisticated such as – “Pay as You Drive” and “Pay How You Drive” – ​​to engine damage policy. The regulator has also allowed insurers to introduce a floating policy for vehicles belonging to the same individual owner for two-wheelers and passenger cars. This circular will take effect immediately.

“The introduction of the above options will help give the much needed boost to OD motor insurance in the country and increase its penetration,” IRDAI said in a statement.

According to general insurance industry insiders, the introduction of add-on coverages such as “Pay as You Drive” and “Pay How You Drive” will push customers towards a “Pay as you Use” model based on the utility, providing greater flexibility and convenience in customer choice. . Additionally, usage-based coverages in addition to an OD policy will provide additional protection for customers who use their vehicle less often.

“It’s a very positive development. Additions to Motor OD’s core policies will allow a purely asset-based scoring mechanism to one that encourages better driving behavior and optimal usage. Insurance premiums would definitely be reduced for customers who drive better and use their cars less,” Sanjay Datta, head of underwriting, claims and reinsurance, ICICI Lombard General Insurance, told FE.

Datta said the introduction of floating font for vehicles will allow customers to consolidate multiple vehicles under one font. “Data collection for the introduction of such add-ons would not be a problem for insurers. There will be a lot of partnerships between different stakeholders. Nowadays, there are many applications that can be used by insurance companies. So the technologies are there to implement some of these things now,” he stressed, adding that ICICI Lombard will “definitely” seek to make such additions to Motor OD’s core policies.

Udayan Joshi, President – Underwriting and Reinsurance, Liberty General Insurance, said it was a welcome move by the regulator, especially at a time when the pandemic has changed the way people work and travel. And, these additional coverages are sure to appeal to customers who work from home more often, making car insurance cost-effective for them. Plus, it will give low-mileage drivers more transparency and control over their car insurance. “At Liberty General Insurance, we tested the ‘Pay as you drive’ product concept as part of the regulatory sandbox, and we’re excited about the opportunity. Furthermore, the introduction of complementary covers such as these will also act as a catalyst to deepen insurance penetration in the country,” Joshi said.

According to TA Ramalingam, CTO of Bajaj Allianz General Insurance, customers do not necessarily use their vehicles in the same way, with some customers having less frequency of use or preferring to use public transport or organizational transport facilities. So that’s where he felt that the IRDAI circular on car insurance top-ups, which is primarily usage-based cover to top up an OD policy, provides additional protection for customers who have a lower frequency of use of the vehicle or also according to the mode of driving of the insured.

“The IRDAI circular seems very customer-centric and a positive gesture from the regulator. Although exact product details would emerge later, this should lift customer confidence and sentiment,” said Susheel Tejuja, Principal, Founder and Managing Director of

Tejuja said the introduction of covers such as “Pay as you Drive” and “Pay How You Drive” will push customers towards a utility-based “Pay as you Use” model, providing greater flexibility and convenience in customer choice. Currently, there is price equity due to the lack of user behavior-based pricing of the insurance premium, which will change. This will make it cost effective for low usage customers, especially those who travel less than 10,000 km per year.

On the other hand, Tejuja, said such a move would eliminate the cross-subsidy currently enjoyed by high-use customers, which could result in slightly higher premiums for this set. “How this adds to the complexity of claims will become apparent once insurers release product details. Overall, these coverages appear to encourage good driving and usage-based pricing, which should bode well for customers,” he said.

Industry watchers have said the ability to cover multiple vehicles under one policy will go a long way in helping the convenience factor, eliminating the need to hold individual vehicle policies and track their renewals. And it should also help increase penetration of car and two-wheeler insurance products overall and reduce customer lapses and non-renewals. However, the lump sum payable for the single premium of multiple vehicles may pinch some and it remains to be seen how the claims process is set up for this coverage.