Your car doesn't hit the road every day, yet you pay the same premium as your neighbour who drives her car for at least 100 km a day. You drive your car with utmost safety, while a reckless youth zips across the busy lanes on his vehicle. When it comes to premium, both of you pay the same amount. Seems unfair, right? Thankfully, Insurance Regulatory and Development Authority of India (IRDAI) has seen merit in fixing these anomalies.
'Pay as you drive' or 'pay how you use' could soon be a reality in motor insurance as the insurance regulator has given approval to seven general insurance companies who had applied to launch such products under the regulatory sandbox - a controlled environment where tech-driven companies evaluate, monitor or test innovative financial products before their full-fledged launch.
Out of 173 proposals that IRDAI had received under regulatory sandox, it granted approvals to only 37 products/applications under health, motor and intermediary categories.
The insurers will run a pilot between February 1, 2020 and July 31, 2020, following which they will share the impact analysis with the regulator. If all goes well, such products will see the long-term implementation. Let's take a look at all that is in the offing in motor insurance:
Pay as you use; pay how you use
ICICI Lombard, which has received highest number of approvals under sandbox, will come up with 'pay as you use' and 'pay how you use' policies for private car owners.
"The insured gets an option to pay their premiums basis the distance covered while driving or by computing the driving behaviour," says Sanjay Datta, Chief - Underwritings, Claims & Reinsurance with ICICI GIC.
Animesh Das, Head of Product Strategy - ACKO General Insurance says packages of kilometres will be available and customers can buy the one that suits their needs. "Once they reach the package limit, they can top-up again."
The premium on such policies could be one-fifth times cheaper than a typical insurance policy. "Take, for instance, the premium on Maruti Swift insurance comes out to be around Rs 10,000 on a traditional policy. For the same car, the 'pay as you use' policy may cost you Rs 5000 for a package of 3000 kilometres," says Das.
Although the product will be available on ACKO website starting February 1, it will not be open to everyone. "We'll pilot it on a smaller base to capture customer reaction. So, initially it will be available to only specific cities for specific models. We want to make sure that nothing goes wrong," he says.
Such policies are expected to increase penetration of motor insurance covering even those who drive less and do not prefer own damage covers. "Pay as you consume model will help us charge premium based on kilometres utilised by the insured or the amount of time they intend to drive the car. This will encourage more people to opt for Motor OD insurance since majority of the vehicles only have Third Party Liability policy as mandated by the law," says Tapan Singhel, MD & CEO, Bajaj Allianz General Insurance.
Bharti Axa General Insurance, Tata AIG, Liberty General Insurance and Digit Insurance have also received approval for this type of product.
Motor Floater policy
If you own multiple vehicles, you don't have to buy separate policies for each. ICICI Lombard General Insurance, Reliance General Insurance and Edelweiss General Insurance have come up with Motor Floater policy that will cover multiple vehicles owned by a single person under single policy. The customers will have flexibility in adding or deleting vehicles as desired. The coverage can also be switched on and off as per the requirement.
"The Motor floater policy will now offer an option to customers to have a single policy for multiple vehicles by having different sub-limits for each vehicle," explains Datta of ICICI GIC.
Since these products will be available on an experimental basis from February 1, keep checking the websites of the respective insurers to see if you can be part of the pilot.
Main Source - Businesstoday