User Based Insurance Or Pay As You Drive

The insurance sphere has always been high on innovation and lateral thinking. After all, insurance (especially in third world and developing countries, like India) isn’t considered an absolute necessity, thus, insurers must constantly evolve their product to attract the right attention. In the same vein, the concept of ‘Usage Based Insurance’ is gaining prominence in the sphere of car insurance. What exactly is this concept? And how relevant is it to car owners in India? Read on…

Basics first, what is Usage Based Insurance?

As the name suggests, Usage Based Insurance is all about calculating the applicable insurance premium depending on the vehicle owner’s driving habits. It’s essentially the ‘Pay As You Drive’ model, wherein your usage of the vehicle decides the quantum of insurance premium payable. Expounding,

  1. The vehicle’s odometer reading is the primary decider of the applicable coverage.
  2. Coverage is also dependent on the location based data- as gleaned from GPS, Smartphone App and/or any authorized tracking device installed on your car that provides real time information on the overall car usage minutes.
  3. Other information collected from the car, including vehicle’s average speed, distance travelled, time taken per trip, etc., also contributes towards the vehicle’s coverage.

How does this ‘spying’ impact my car insurance profile?

Usage Based Insurance, and the methods used to make it happen, can be deemed as ‘good spying’, where the data collected isn’t utilized in any marketing stunt, but rather, to evaluate your abilities as a driver. If you are a disciplined driver, your premium amounts are bound to be less. Hence, you will be solely responsible to assign your own premium amounts, without having to comply with a common rule that applies to a larger demographic. Stop paying for the irresponsible mistakes of others!

What is the role of ‘Telematics’ in this insurance format?

Broadly speaking, Telematics refers to the whole range of technologies and implements that send, receive and store information to and from any moving vehicle. A simple GPS device, a plug-and-play device for your dashboard, or maybe a tracking app on your smartphone, any of these implements is central to the concept of telematics usage based insurance.

This sounds expensive. Is it really gonna be cost effective compared to the traditional option?

This Usage Based Insurance concept rewards responsible driving. Definitely, disciplined drivers are in line to save a bundle of money. And, the traditional option is equally hard on irresponsible drivers, while not rewarding the good guys for their fine work. You do the maths!

Sounds exciting. When can I expect to see ‘Pay As You Drive’ option as a common offering?

Before Usage Based Insurance becomes as common as bread, the car insurance companies need to sort out three fundamental concerns-

  1. Turning the concept into a lucrative option, with long term advantages for the customer and definite benefits when viewed against the incurred costs.
  2. Creation of a comprehensive plan to deal with all the sensitive data generated- its storage, security etc.
  3. Quench all the concerns that are likely to arise amongst the customers about their privacy.

Usage Based Insurance is an inevitable reality, and competition amongst Car Insurance providers is bound to heat up when this advantageous option becomes common knowledge amongst the Indian customer base. Telematics is the next big thing, definitely.

GST Update: GST of 18% is applicable on car insurance effective from the 1st of July, 2017

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