Home / Money / Personal Finance /  What to consider while opting for these new add-ons in motor insurance

Sanjana topped her school in class 12 and got admission to her dream college. As promised, her parents gave her permission to drive to college, around 30 km from their home. She travels 60 km per day and on weekends goes on road trips with family and friends. On the other hand, Ashish, a retired military officer, prefers to walk instead of driving over short distances. He rarely uses his car and drives only during the weekends, that too for a maximum of 10-15 km per week.

Do Sanjana and Ashish (the names and example herein are only for the purpose of illustration) share anything in common? Yes, the insurance premium of their cars that are similar in terms of model and age, is the same. Despite a huge difference in usage, they must pay the same premiums. Isn’t this unfair? But, this is how the motor insurance market has been operating in India.

Motor insurance policies cover damage to the owner’s vehicle, and the owners’ legal liability to pay compensation to a third party for death or bodily injury, or damage to third party property. The premium for own damage is dependent on the insured declared value (IDV), engine capacity and age of the vehicle. The third-party premium is decided by the regulator, Insurance Regulatory and Development Authority of India (Irdai). But, now, the motor insurance market is changing. There are options like ‘Pay As You Go’ and ‘Pay As You Drive’ available in the market.

Pay as You Go and Pay as You Drive

Under ‘Pay As You Go’ option, you would be charged as per the vehicle’s mileage. So, you must declare how many kilometres you will be driving the vehicle during the policy period and the insurance company will charge you accordingly. If your vehicle runs for more, you can top up the premium with the insurer.

Under ‘Pay As You Drive’, a good driver is rewarded with bonuses and discounts. If you have a poor driving history, you may be charged higher premium. Here, average speeds, braking techniques used, etc. ,will be traced through the telematics devices installed in the vehicle.

Before you buy these covers, here are two points to consider. First, you must choose your kilometre slab carefully. As per your average usage of the car, you can declare the kilometre slab for your vehicle. If you have chosen a lower slab like 5,000 km in a policy period but drive more than 5,000 km, the insurance company will not provide cover unless you top-up the kilometre slab before the expiry of the threshold limits.

Second, while the telematics device will be installed by the insurance company, it may increase your overall premium as the cost of the device can be included in the insurance premium. However, it will still be beneficial as compared to a traditional comprehensive plan. The telematics device will share the driving behaviour with the insurance company on a daily basis and you can expect some discounts if your driving history is good.

Who should consider these covers

People owning multiple vehicles should go for these covers because even if some of your vehicles are used less, you will not have to pay higher premium amount for own damage cover. If the vehicle is used less, you will be charged a lower premium and vice-versa. People who prefer using public transport more than private vehicles, especially in metro cities or are working from home, can also consider these covers. Go Digit General Insurance company is the first insurer to offer this as an add-on cover to the ‘Own Damage’ part of the policy. This cover is available in the market. Do note that the third-party premium would not be affected by these coverages as that is determined by Irdai.

Due to the limited usage of vehicles during Covid, many people renewed only the compulsory third party cover. ‘Pay As You Go’ cover can motivate people to buy own damage cover as the premium will be based on the vehicle’s mileage. It can help in increasing the motor insurance penetration in the country.

The conditions of road in India may not be ideal for ‘Pay As You Drive’ coverage. Also, many people may not be comfortable sharing their data through telematics devices. Insurance companies may need to find some innovative solutions for such challenges that they could face in the Indian market.

Dr Pallavi Seth is an assistant professor at Amity School of Insurance Banking & Actuarial Science, Amity University, Noida.

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