Usage based insurance is the new buzzword in motor insurance in India. Simply put, it means that one can now pay for motor insurance premium depending upon their usage and consumption. Until recently, everyone who bought a motor policy paid the same premium irrespective of the usage of their vehicle.

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This changed with the IRDAI introducing usage-based insurance concepts like Pay as you drive (PAYD) and Pay how you drive (PHYD), that lets customers control the premium they want to pay basis their consumption, a truly innovative, empowering move.

Let’s understand these better:

Pay as you drive and Pay how you drive are telematics-based concepts having a consumer-first approach and allow consumers to pay a premium based on how much they drive and how they drive. The end result is lower premium rates and happy consumers. While Pay as you drive charges a premium based on the number of kilometers driven by the policyholder, Pay how you drive decides premium on the basis of your driving behavior. PHYD considers how well you drive in addition to your age and experience to decide the premium amount.

If you instill safe driving practices such as avoiding speeding and hard braking, etc. you are likely to benefit from better premium rates. With PHYD, the safer you drive, the better the premium rates.

How does PAYD/PHYD Work?

Both PAYD and PHYD use telematics to determine premium rates. Insurers can use either a telematics device or a mobile app to track the kilometers driven. If your insurer uses a mobile app, the app will detect motion and automatically activate the policy when you drive your vehicle. Thus, you will pay only for the time your vehicle is on the road.

Telematics devices or apps also track drivers’ behavior data such as the most frequent time of driving, the speed, area, instances of hard braking, and more. Based on this data, insurers analyze driving patterns and give a driving score. This telematics-based score helps insurers measure the risk profile of drivers and decide on premiums based on that.

How do PAYD and PHYD Benefit Consumers?

As stated, pay as your drive and pay how you drive are consumer-centric concepts. Consumers can get the below advantages by opting for them.

● Money-saver: Both PAYD and PHYD use telematics, and thus, by analyzing the data on driving behavior and kilometers, insurers can offer a unique premium rate for each motor policy. This is a huge advantage for policyholders as they can save money if they are driving less and safe. PAYD and PHYD can be translated to drive less, pay less and drive well, pay less.

● Lower premiums rates: PAYD and PHYD reward policyholders that drive less and instill safe driving practices. The risk of insurers is reduced if the policyholder drives safe and less; the odds of accidents are also reduced. As a result, there is no longer any requirement to charge higher premiums, and that directly benefits consumers.

● Promotes safe driving practices: Telematics tracks, records, and sends data on driving behavior to insurers, and the premium rates per policy year change based on the same, Thus, it acts as a motivational force for policyholders to drive safely and get better premium rates.

While Usage-based insurance empowers customers, customers can also be rest assured that their privacy will be taken care of. All customer data is encrypted and are not recorded or used anywhere. The data is only used as a guidance tool to encourage customers to drive better. Scores generated on different parameters like over speeding, sudden braking, etc. provides an opportunity for the customer to analyse and course correct and eventually become a better and safer driver, without privacy intrusion.

Conclusion

The motor insurance industry in India is being disrupted with the introduction of usage-based insurance. Customers wanting personalised solutions, greater control and choice, better value, etc. will highly benefit from this. I would urge people to try these new concepts, and experience for themselves that they can save on their insurance premiums based on their usage and driving behaviour!

The author, Rakesh Kaul, is Chief Distribution Officer at Edelweiss General Insurance

First Published:Dec 8, 2022 6:26 PM IST