One of the biggest concerns faced by car owners is the premium amount of their insurance policy. In January 2020, the IRDAI launched the usage-based insurance (UBI) private car insurance policy under its regulatory sandbox initiative to offer a customized solution for vehicle owners.
“Pay as you Drive” (PYD) insurance or ‘Usage-based insurance’ is a type of insurance policy, where the premium is linked with the usage of the vehicle. It is also known as ‘Telematics’ insurance, where software is used to track and store data related to the vehicle’s usage, and thus understanding the driving behaviour and premium rates.
The ‘Pay as you drive’ insurance policy is a combination of a mandatory Third-Party (TP) cover and a discounted Own Damage (OD) cover, which will be offered in different kilometer slabs. According to the regulations decided by IRDAI, a central repository of telematics data will be created, which will act as a pool for all the software related data, and the IRDAI will manage the repository to ensure that safe practices are maintained, and the data is protected. Under the terms of the IRDAI, insurance companies are required to sell 10,000 insurance policies to make this a regular part of their offering.
As of August 2020, the following companies are offering the ‘Pay as you drive’ insurance policy to its customers:
- Edelweiss General Insurance
- Bharti AXA General Insurance
- Tata AIG General Insurance
- ICICI Lombard General Insurance
- Bajaj Allianz General Insurance
How Does The ‘Pay as you drive’ Insurance Policy Work?
Kilometer declaration: The policy comes with several kilometer slabs that a vehicle owner can choose, based on his vehicle usage. The slab offered by the insurance company can be chosen for one year, and on this basis, the vehicle owner needs to declare its usage for one year.
Telematics device is installed: A telematics device will be fitted to the car that is GPS enabled and is linked to a mobile app for recording all the information regarding the usage of the vehicle. This device becomes active as soon as the policy is effective, and must be kept fit till the end of the policy.
Advanced analytics is recorded: The telematics device records all the important aspects of vehicle usage in order to gauge the driving behaviour and establish a pattern that can be used to determine the premium rates. The following details are tracked by the device:
- Kilometers driven
- Vehicle’s overall health
- Fuel usage
- Night-time driving
- The average speed of the vehicle
Driver’s pattern: Based on the data collected by the device, the insurance company arrives at the driver’s risk profile and charges the premium accordingly. If the driver crosses the threshold of the selected slab of kilometers, (s)he can recharge it between his/her tenure or at the end of the insurance policy, which is usually for one year.
What Are The Features of The ‘pay as you drive’ Insurance Policy?
Flexible kilometer based approach: Unlike traditional motor insurance policies, where a flat price is charged to all vehicles irrespective of their kilometers driven, the PYD policy allows policyholders to choose from kilometer options such as 2,500 km, 5,000 km, 7,500 km and so on. Using the top-up option, the policyholders can refill their kilometers quota after exhausting their current options.
Value-added propositions: Apart from its regular features, it also comes with additional benefits such as daily allowance, no-claim bonus protection cover and depreciation reimbursement.
Why Should You Buy The ‘Pay as you drive’ Insurance Policy?
Build better and safe driving habits: The ‘Pay as you drive’ insurance policy instils safe driving habits as the driver is made aware that his/her driving habits are analyzed by the device and considered by the insurance company for determining the premium amount. Also, the insurance policy offers bonus kilometers at the renewal of the policy for good driving behaviour.
Advantages of fitting a telematics device: The telematics device that comes free of cost with the policy offers a lot of benefits in terms of detecting theft, offering roadside assistance, and tracking the vehicular movement. The device also contains motor sensor support and generates fuel-saving reports, and guards against dangerous driving and fuel slippage in the vehicle.
Save money on premiums: Unlike traditional motor insurance policies, where premiums are based on the car model and the year of manufacturing, this policy is based on the usage of the vehicle and the overall driving habits. In short, if a person drives carefully, (s)he will end up paying a lesser premium than (s)he would have paid in his/her standard motor insurance policy.
Ideal for people who own multiple cars: Many people who own multiple cars end up burning their pockets for paying premiums even when their cars are not in regular use. This policy is beneficial for such individuals as they can save premium on their vehicle’s insurance policy.
Discounts: Some insurance companies are offering a discount based on the slabs chosen. For e.g., Bharti AXA is offering a discount of 25% to those who pick up the 2,500 km slab, 15% for 5,000 km slab, and 10% for 7,500 km.
How To Buy a ‘pay as you drive’ Insurance Policy?
The following steps will guide you in purchasing the car insurance policy online:
- Go to the insurance company’s website and select the ‘Pay as you drive’, or ‘Usage-based insurance’ policy from the fields in the Motor insurance webpage.
- Enter the following requested details on the page:
- Mobile Number
- Annual kilometer usage
- Make and Model
- Year of Registration
- City of registration
- Provide the other requested details and fill in the customer consent form. Also, you can select any add-on cover provided by the company.
- Once you submit the details, a premium amount will be generated based on the slab that you have chosen. Pay the amount shown through the available payment options, and your ‘pay as you drive’ policy will be issued and emailed to you in a few minutes.
Frequently Asked Questions (FAQ’s)
1. What documents should be submitted for availing of this insurance policy?
Ans. To buy a ‘pay as you drive’ insurance policy, you need to submit the following details to the insurance company:
- Odometer reading
- Customer consumer consent form
- KYC details
2. Do I need to inform the insurance company once I cross the threshold slab of kilometers that I have chosen?
Ans. Yes, it is recommended that once you cross your slab, you inform the insurance company so that any future claims can be serviced uninterrupted.
3. If I have selected a slab of 2,500 km, and now want to increase it to 7,500 km, can I do it in the middle of my policy year?
Ans. Yes, as of the current guidelines, you can change the slab in the middle of the year too.
4. I have selected the slab of 5,000 km for my ‘pay as you drive’ insurance policy, and I crossed the threshold last week. Can I transition to a standard motor own-damage cover?
Ans. Yes, you can make the transition to a standard cover.
5. Since this policy is a combination of TP (Third Party) and OD (Own Damage) cover, till what time are these two covers valid?
Ans. Under this policy, the Third-Party cover will be valid for the entire policy year, while the Own Damage cover is applicable until the kilometer threshold is met.