Bengaluru: Online insurance start-ups, which are trying to use customer data from vehicle trackers and wearable devices, have hit a blockade due to lack of regulatory oversight on premium pricing and data protection.
Currently, insurers operating in the motor insurance segment depend on vehicular data, such as engine displacement, capacity of the vehicle, miles driven and age of the vehicle, to price premiums.
Despite motor insurance being mandatory in the country, the segment’s losses are significantly growing every year. According to a Moneycontrol report, motor insurance losses are expected to increase by 230% in FY19, from the current 140%.
Start-ups and traditional insurers are trying to cut losses by collecting granular data from customers, such as driving behaviour, kilometers driven and time taken for each trip, among others. Insurers say that they can frame pricing policies using granular data to cater to the customer’s needs, while charging premiums on how the vehicle is being driven.
But the Insurance Regulatory and Development Authority’s (IRDA) regulations on pricing of insurance products, high cost of tracking devices, and lack of well-defined data protection rules, are hindering development of digitised insurance products, according to legal and industry experts.
For instance, the variable premium pricing, widely known as “pay-as-you-go", cannot be implemented in India since IRDA’s regulations only allows fixed premium pricing. With such a regulation, insurers in India who use telematics are only offering discounts on the final premium, instead of pricing the product variably on the basis of vehicle usage.
Telematics involves acquiring real-time data, using sensors fitted to the vehicle, and transmitting it wirelessly using telecom networks and other wireless mediums. The technology is mostly used in road safety, electrical engineering, and computers.
Last year, the IRDA had also issued a white paper, which looked into the potential of telematics in insurance pricing. The regulator is yet to come out with the final guidelines. Start-ups, including Toffee Insurance and Digit, besides insurance majors such as Bajaj Allianz, are looking to introduce telematics-based insurance in the market, but regulatory challenges have clogged innovation.
“Someone who drives 1,000 kms a month, compared to someone driving 10,000 kms a month, why should they both be priced at the same level?" said Rohan Kumar, chief executive of Toffee Insurance, over the phone.
Vishal Shah, who heads data science at online insurance start-up Digit, said the company will look at telematics-based insurance for commercial segment customers, instead of selling to consumers. “Most commercial vehicles require tracking, and this (telematics-based insurance) will really make sense in the commercial space with the pace that the (online insurance) market is growing," added Shah.
In 2016, Bajaj Allianz General Insurance Co. Ltd had introduced a car insurance policy based on telematics, but it is yet to see wide adoption. Till date, only 20,000 customers have opted for telematics-based policy, and Bajaj expects to sell more of such policies in the future. The company sells more than 10 million policies a year across all lines of business, out of which about 45% comes from motor insurance.
“We are awaiting regulatory nod to pass on the benefit to the customers and it will be purely based on driving behaviour of customers, such as acceleration and braking, among others," said Gaurav Malhotra, appointed actuary, Bajaj Allianz General Insurance, in an email interview.
Apart from IRDA’s regulatory norms, lack of comprehensive data protection law is also a contributing factor for low adoption of telematics-based insurance. According to Namitha Viswanath, principal associate of IndusLaw, India’s data protection only applies to collection of certain sensitive personal information, and not comprehensive enough to touch upon all industry segments.
The extent of compliance that online insurers need to follow will depend on the kind of data they are collecting. In case of motor insurance, information such as licence plate details can be classified as personal information, since it can be linked to a person, said Viswanath in a phone interview.
“When it comes to telematics or tracking devices, the kind of data they (insurers) collect, may not satisfy the definition of sensitive personal information. So in those cases, the IT regulatory framework in India may not be enough to actually protect the data, which is being collected (by telematics devices)," she added.
But when it comes to wearables, such as Fitbit, it could collect sensitive information because it relates to someone’s personal health.
“In some countries, such as the US, users who are voluntarily signing up for sharing data (with insurers) through the use of wearables, are doing so in the hope of getting benefits from the companies. There you obviously have the person’s consent. But in situations where the person has not consented for this use, and if the information being collected is personal, you will need to find some way to get user consent," added Viswanath.