Insurance

Now pay for how much you use

Now pay for how much you use

Indian insurance companies all set to introduce tech-driven, pay-per-use coverage on push from regulator IRDAI

Indian insurance companies all set to introduce tech-driven, pay-per-use coverage on push from regulator IRDAI

Insurance pricing is data-driven. One layer is macro-level data over years and decades on the incidence of losses for specific perils such as factory fires, freight truck accidents, and people developing heart disease or dying young. .

Another layer is customer microdata like the nature of manufacturing and the prevention and preparedness for fires in a factory; maintenance and usage patterns, including geographic, of a truck; and the health and life insurance applicant’s age and medical history, which gives insurance companies a basis for pricing group risk.

The two read together map the risk profile of the potential insured, which leads to the appropriate premium.

Still, if I’m healthier than most people in my age group, I can’t help but think I deserve a better bonus. This is managed to some extent by bonuses or incentives such as not being a smoker as well as charging a bounty for negative aspects.

In car insurance, why should someone who takes his car out only on weekends or only to the bank and the local supermarket, pay the same premium as a neighbor who travels 80 km round trip to get to the work, then a little more on weekends?

The response to this has been the technology driven fee-based insurance that Indian insurance companies are all set to introduce under the impetus given by the Insurance Regulatory and Development Authority of India (IRDAI ).

Companies have started offering this additional coverage where you can choose a cap on the distance traveled during the policy period and get a discount.

To start, your car must have driven 10,000 km or less per year since you bought it from the showroom. If you choose a ceiling of 7,500 km per year, you benefit from a 10% discount on your total own damage premium.

If you choose 5,000 km, your discount is 15% and at 2,500 km, 25%.

These discounts have been called disappointing for two reasons. One they are only on clean damage coverage and the other they are skinny.

Before we get to that, let’s see some terms and conditions. You choose your limit at the time of subscription or at renewal. You have the option of increasing your limit mid-year, but you have to do it long before you hit the cap and you certainly can’t do it after an accident or claim.

Deceptions”

Liability insurance is a tariff decided by all companies and not the responsibility of an individual company. It deals with an entirely different set of risks, namely the risk of causing damage or loss to the vehicle, property or life of others. TP insurance protects you from this monetary liability and the premium is actually quite moderate in India for the benefits it offers and also compared to other countries.

The reduction in the personal damage premium seems meager for an important reason.

The amount and quality of use you make of your car can change your chances of having an accident and damaging your car.

However, your own damage insurance also provides some coverage when the vehicle is not on the road. For example, it covers damage to or loss of your car in the event of flooding, riots, civil unrest and theft. Therefore, the premium for it does not change.

This leaves us with the fact that the discount is actually on a portion of the premium, but as this level of detail of premium calculations is opaque to us, we consider it a component of the whole damage premium and it seems weak.

Pay “how” you use

It’s a bonus based on how well your car is driven and maintained, to be precise. To do this, the insurance company places a telematics device in your car that reports data on speeding, or how often your engine is tuned or tires are balanced. Your premium is based on this. Another innovation is a floating sum insured for vehicles owned by the same person, similar to floating health policies. A lump sum insured is applied to all vehicles and the total premium amount will be lower. However, just like in health insurance policies, once the sum insured is exhausted by one vehicle/accident, the remaining vehicles will have much lower coverage until the end of the insurance year.

It is not yet known how this will work for different types of cars which, moreover, could all be used by different members of the household and whether there may be a reset of coverage during the year (such as for the payment in use), but car insurance is nuanced in an interesting way and a certain “unfairness” in the pricing of premiums now has a way of being corrected.

(The author is a business journalist specializing in insurance and corporate history)

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