Home >Money >Personal Finance >Should you opt for a ‘Pay As You Drive’ motor insurance?
Dealers have been protesting inventory dumping by automakers. Photo: Pradeep Gaur/Mint
Dealers have been protesting inventory dumping by automakers. Photo: Pradeep Gaur/Mint

Should you opt for a ‘Pay As You Drive’ motor insurance?

  • In India, products like the "Pay As You Drive" policy are a new entrant and it may help only those who have multiple cars not all of which are driven frequently.

The Insurance Regulatory and Development Authority of India (Irdai) approved various proposals under the regulatory Sandbox in January this year. In the first tranche of sanctions, general insurance companies such as Bharti AXA, ICICI Lombard, ACKO General among others got approval to offer "Pay As You Drive" motor insurance policies. Some of these companies are now offering this product through their websites, online insurance aggregators, agents and other distribution channels, but should you opt for it?

What is it?

A "Pay As You Drive" product is a comprehensive own damage (OD) plus third party (TP) policy and is being offered on a pilot basis for a year. Insurers are required to sell 10,000 policies in six months to be able to offer this as a regular insurance policy. Policyholders looking to buy the cover will have to declare the distance they expect to travel in the policy year at the time of policy purchase, and the premiums will be decided accordingly.

“At present, there are three slabs— 2,500 km, 5,000 km and 7,500 km. The TP premium is fixed according to the Irdai norms, but discounts are offered on the OD component of the policy. For customers who pick the 2,500 km slab, we are giving a discount of 25%; for 5,000 km it is 15% and for 7,500km it is 10%," said Milind V Kohle, chief underwriting and reinsurance officer, Bharti AXA General Insurance.

You can buy the policy online by providing the odometer reading and Know Your Customer (KYC) details, and filling up a customer consumer consent form. Say you opt for the 5,000 km slab. The the company will take note of the existing odometer reading and cover you for the next 5,000 km. Kohle said currently there is a restriction on the number of policies that companies can sell but if the response is good and the product is a success, the company would include this in its range of offerings.

ICICI Lombard also launched the policy about two months ago and the company hasn’t received a significant response yet due to the lockdown. Sanjay Datta, chief, underwriting, claims and reinsurance, ICICI Lombard General Insurance, said that since it is a Sandbox product, they’ll have to see the success in terms of the number of policies the company is able to sell and then take a call on whether they want to include the product in their mainstream offerings. “The policy offers customization based on driving experience, unlike the claims experience which is practiced in regular motor insurance policies. We were offering a discount of 5-10% on OD premium, but that was before the lockdown and it wasn’t based on any data. We’ll have to see how it works now," he added. Insurers believe this product is more useful for people who have multiple cars and don't use all of them often, because in case of just one car, you may not be able to predict how much you'd drive in the policy year.

SHOULD YOU BUY IT?

Many insurers are trying to bring in innovative changes to products across categories under the Sandbox regulation, but it’s necessary to understand if the product would really work for you. In India, products like the "Pay As You Drive" policy are a new entrant and it may help only those who have multiple cars not all of which are driven frequently. However, certain complications still exist. “There are certain slabs that insurers have designed and once you pick a particular slab, it’s a task to keep a tab on it. Also, the discount is only on the OD part of the policy so the premium benefit may not be too much especially for small and medium-sized cars," said Rakesh Goyal, director, Probus Insurance, an Insurtech Broking company. “Also, say you’ve picked the 5,000 km slab and you forget to inform the insurer once you’ve crossed the 5000 mark and a claim comes up, I don’t think it will be approved. All these points need to be considered."

Though the industry is trying to make motor insurance more customized and base premiums on driving behaviour like some of the developed countries, there’s still a long way to go. Goyal said at this point it’s advisable to stick to the regular motor insurance policies until customized and utility-based policies become successful and mainstream. “The Indian insurance industry needs to invest in devices such as telematics first, in order to build on the technology front because without that, implementation of innovative products will be a challenge," said Goyal.

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