Insurance Article, The Insurance Times 2023, The Insurance Times February 2023

The future of Auto insurance is usage and behaviour based

India’s insurance regulation (IRDAI) has allowed general insurers to offer technology-enabled add-on plans for auto insurance policies based on the owners’ usage and driving history. Here’s what it means for you.

Our social and work habits are just a fraction of the aspects of our daily lives that have been impacted by the pandemic’s two protracted years. And because of these changes, everything else in our lives—from where we work to how we commute—has changed, even the way we drive.

While COVID-19 has severely disrupted several industries, they have been looking for ways to adapt to the “new way”. The same is true for insurers. The relentless digitisation push has led the insurance industry to the brink of a paradigm shift.

As a result of the outbreak, several people have changed their driving habits. To stay up with shifting client expectations, insurance players have been playing catch-up in response to technology’s disruption of the insurance market.

One such innovative solution is the introduction of two telematics add-ons, Pay-As-You-Use (PAYU) and Pay-How-You-Use, which uses Telematics and onboard diagnostics (OBD) to track automobiles, trucks, machinery, and other assets (PHYU).

What is Telematics?

Telematics is concerned with the long-distance transmission of digital information. The term “telematics” is now commonly used in the automotive industry, particularly in regard to monitoring and tracking, which in this case will be monitoring your odometer and GPS data.

Likewise, telematics devices and solutions have evolved in tandem with rapid technology breakthroughs. For example, dashboard cameras can help insurers analyse the legitimacy of a claim and provide information about the collision. Collision warning systems can detect collisions, and if a significant incident occurs, an SMS will be sent to the emergency contacts listed on the insurance company’s helpline alerting them of the position of the car and the number of persons inside at the moment of the collision.

Within the rapidly growing usage-based pricing

Customers know the benefit of dealing with providers who adopt a usage-based pricing model: use the items only when necessary and only pay for what you actually use.

Even in the software business, SaaS suppliers are abandoning traditional subscription pricing in favour of usage-based models that more accurately represent current consumer purchasing trends and the value that their products give. UBP, also known as consumption-based pricing, associates a customer’s payment with the amount of a given good or service that they use.

Despite the fact that the insurance sector has a long history of creating new, exciting markets based on emerging risks and consumer demands, it is not frequently viewed as a shelter for innovation. Although the sector as a whole has developed pockets of innovation in India, few insurers have actively promoted innovation.

Due to rising customer expectations, low-interest rates, and fresh competition, insurers are under pressure today to take a more deliberate approach. For instance, the Insurance Regulatory and Development Authority of India (IRDAI) modified the “use and file” procedure for all health insurance products and the majority of general insurance products under fire, motor, marine, and engineering.

The Use and File approach essentially allows insurers to launch their products on the market after filing with the regulator, eliminating a longer waiting period and enabling them to provide customers with cutting-edge insurance solutions to better handle the changing insurance industry.

Implications for Buyers

The new motor insurance regulations for private automobiles and two-wheelers owned by individuals will allow users to pay for insurance in accordance with their automobile usage. This basically means that insurers will allow customers to convert their base motor policy into an ‘Asset cum Usage’ policy, in which the premium charged for the base motor vehicle insurance is determined in part by usage.

Customers would choose to pick from a variety of “Kilometres” under PAYU based on consumption. The price for the insurance would only cover the amount the customer is expected to use the car for. Customers may also add additional kilometres to their initial purchase over the policy’s duration. Only if the paid Kilometres (or additional grace Kilometres provided to the customer) are still being used at the time of the loss will this Add-coverage be deemed in effect.

The premium amount under the second Add-on PHYU would vary depending on the driving behaviour score. Customers who exhibit safe driving practices qualify for substantial savings off the policy’s base cost. By disincentivising bad driving behaviour, this policy would encourage the development of good driving habits while rewarding excellent driving behaviour.

Should I be mindful of anything before purchasing the add-ons?

The insured shall ensure that the miles were driven and other driving-related criteria are easily determinable at any point during the policy’s term or during the time of a claim, whether via technology, readings in the vehicle’s devices (such as the odometer), or any other available method. Any tampering with these tools or readings renders the add-ons worthless and may result in claim denial.

Also, if the policy is renewed within 30 days of expiration, the maximum amount of kilometres that can be carried forward in the case of ICICI Lombard is 1000. After 30 days from the renewal deadline, unused mileage cannot be carried forward. Additionally, the Insured may select any available Kilometres range according to his or her needs. At any moment during the policy duration, Insured may top up the add-on (from the available top-up alternatives) if the previously paid kilometres run out.

The Pay How You Use plan would impact the insurance rate based on how an insured vehicle is used and/or driven. In order to boost upfront pricing variability, the intrinsic behaviour of the relevant customer segment may also be constructed utilising past data from the relevant customer segment.

A Smarter Way Forward 

The insurance business is already experiencing a seismic shift as a result of digitisation. One of the most valuable assets for insurers today is data, which enables carriers to create new products and policies based on changing consumer demand.

By utilising cutting-edge technologies like AI, drivers and insurers can better comprehend actual driving patterns with behaviour-based insurance. Insurers are also prepared to provide a seamless Omni channel experience, including self-service options, allowing current and potential clients to buy policies, request assistance, file claims, track open claims, and more across multiple channels without experiencing service interruptions.

As technology further develops, insurers will be able to more accurately assess risks using real-world data from millions of devices, while drivers can track their own driving behaviours to save costs and increase road safety for all users. As more real-world data is gathered, we will be able to move to more reliable behaviour-based insurance approaches. Future predictions for auto insurance can lead to greater equality, lower costs and the promotion of safer driving.

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