How much can you save by using a pay-as-you-drive motor insurance policy?

Your car insurance premium may soon be decided by how much and how well you drive. The Insurance Regulatory and Development Authority of India (Irdai) has allowed insurers to launch motor insurance policies with prices linked to mileage and driving quality. Pay-as-you-Drive policies allow buyers to set a mileage limit for their cars and offer discounts on the normal price. The lower the limit, the greater the discount on the normal premium. The insurance is valid only up to the limit chosen by the buyer. An insurance company offers three slabs of 7500 km, 5000 km and 2500 km.

The insurance regulator has also proposed vehicle covers. Just as floater health policies cover all members of a family, vehicle owners can get several vehicles covered under a single policy. In health insurance, floater policies are very popular, but whether they will become the preferred option in motor insurance is debatable. Vehicles owned by a family are usually registered under different names, which can be a drawback in such floating covers.

Irdai has also allowed insurance companies to offer discounts based on driving quality. A telematics device is installed in the car to monitor the vehicle’s condition and the user’s driving habits. This data is then interpreted to give discounts to careful drivers. It can also penalize rash and careless drivers. These developments appear to be good news for those who own multiple vehicles or haven’t driven much due to Covid restrictions. They will not have to pay the full premium if their vehicles are not used much. “Acceptance of these options will help provide the much-needed fillip to the engine’s own damage coverage in the country and increase its penetration,” Irdai said in a statement.

Expectedly, the insurance industry has praised the move. “This is a transformative development in the motor insurance category. It will encourage utility-based insurance purchases and also encourage safe driving habits,” says Sanjay Datta, Head of Underwriting and Claims, . “Irdai has created a win-win situation. can now be tailored based on the customer’s driving behaviour. It will benefit customers who have low vehicle usage, take care of their vehicles and follow traffic rules,” says Rakesh Jain, CEO, General Insurance.

However, a closer examination shows that such policies can provide only limited benefits. The discounts offered on the premium are not very exciting (see table). If you opt for the 7,500 km slab, you only get a small discount of 10% on the regular premium. Note, the discount only applies to the compensation of own damage, and the compulsory third party premium and other additional covers are not affected. The discount becomes slightly more attractive for a lower limit of 2500 km, but this works out to an average journey of less than 7 km per day. Consider this before choosing a policy with a low slab.

The good news is that buyers can upgrade to a higher plate or even a regular unlimited policy if they end up driving more than the plate limit. But this improvement must be made long before the threshold limit is exceeded. It is not possible to upgrade after a disaster or incident claim. “Insurers will need to clarify the process of settling a claim if a customer exceeds the stated usage,” points out Supriya Rathi, Whole Time Director, Anand Rathi Insurance Brokers.

Installing telematics equipment is another ticklish issue because it raises privacy concerns for the car owner. No doubt it will lower your insurance premium, but this discount comes at a cost. Do it only if you are comfortable with the thought that the insurer will have 24×7 records of your car’s movements.

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