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Car-owners may soon have an option to buy insurance cover in proportion to the distance they travel.
Insurance companies are testing this model, called ‘pay as you go’ insurance, by running pilots. Data is monitored through GPS device installed in the vehicles.
“The basic idea is to charge a minimum premium, say Rs 1,000, which can cover 30 days of driving. Instead of paying the entire year's premium in advance, the policyholder can pay according to his usage. If the usage is less, the remaining amount can be refunded,” said K. G. Krishnamoorthy Rao, Managing Director and Chief Executive Officer, Future Generali Insurance.
The GPS device gathers data based on the mileage and the roads on which the vehicle has run. The insurance company will price the cover based on each of these parameters.
The first company to run a pilot was Future Generali in partnership with Logica, a UK-based IT company.
On-board unit
According to Rakesh Aerath, Vice-President - Consulting Services at CGI group (erstwhile Logica), its flagship product Crimson provides an on-board electronic unit that enables usage-based insurance. This product is based on the principle that reduced driving reduces the risk of accidents and insurance claims. Crimson has anti-theft features built in which help in detecting unauthorised usage.
Currently, Future Generali is collecting data to come up with a pricing model for ‘pay as you go’ car insurance after which they plan to approach the Insurance Regulatory Development Authority (IRDA).
Bharti AXA General Insurance is testing the concept by installing GPS devices in the cars of 150 of its employees, said Amarnath Ananthanarayanan, MD and CEO.
“Motor insurance premium in India is currently calculated based mainly on the age and value of the vehicle. With ‘pay as you go’ vehicle insurance, owners who drive less and have better driving habits will be charged lower premium, while others can be charged more.
“So, it will help insurers better facilitate risk-based pricing of policies,” said Madhukar Sinha, National Head, Personal Lines, Tata-AIG General Insurance.
However, even though general insurance companies have launched pilots, they have not launched the product due the high cost of the devices, said industry experts.
“As the technology evolves and becomes more cost effective, ‘pay as you go’ car insurance will be adopted by the general insurance industry,” said Amitabh Jain Head - Motor Underwriting and Claims, ICICI Lombard.
> adith.charlie@thehindu.co.in
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