India’s insurance regulator has allowed general insurers to offer technology-enabled addon plans for auto insurance policies based on the owners’ use and driving history.

As a result of the Covid-19 outbreak, several people have changed their driving habits. To stay up with shifting client expectations, insurance players have been playing catchup 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 (PHYU), which uses telematics and onboard diagnostics to track automobiles, trucks, machinery and other assets.

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 for monitoring and tracking, which in this case will be monitoring your odometer and GPS data.

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 a 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 time of the collision.

Customers know the benefit of dealing with providers who adopt a use-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 use-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 known for its 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 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 will allow individuals to pay for insurance in accordance with their automobile use. 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 use.

Customers will pick from a variety of “kilometres” under PAYU based on consumption. The price for the insurance would only cover the amount of distance 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 on the policy’s base cost. By disincentivising bad driving behaviour, this policy would encourage the development of good driving habits.

What to keep in mind

The insured shall ensure that the miles 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.

If the policy is renewed within 30 days of expiration, the maximum amount of kilometres that can be carried forward in the case of some insurers are 1000. After 30 days from the renewal deadline, unused mileage cannot be carried forward.

The insured may select any available ‘kilometres’ range according to his or her needs. At any moment during the policy duration, the insured may top up the add-on (from the available top-up alternatives) if the previously paid kilometres run out.

A smarter way forward

The insurance business is already experiencing a seismic shift as a result of digitisation. 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 move 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. Future predictions for auto insurance can lead to greater equality, lower costs and the promotion of safer driving.

The writer is chief — underwriting, reinsurance & claims, actuarial, ICICI Lombard GIC