Owning a car has become a necessity rather than a luxury and many families own more than one car to meet their professional and social demands. Along with the ownership of more than one car comes the increased cost of maintenance and pay-outs for accidental damage. This can be a rather costly affair for middle-class families as it directly doubles the costs of the premiums. At the same time, good insurance can also not be compromised upon. Then what is the solution?
In January 2020, under its regulatory sandbox program, IRDAI launched the Use Based Insurance (UBI) private car insurance policy to give vehicle owners a personalised solution. 'Pay as you drive' (PYD), motor floater or 'Use-based insurance' is a form of the insurance policy under which the premium is related to the use of the car.
It is often referred to as 'Telematics' insurance, where software is used to control and store information relevant to the use of the car. This helps the insurance providers understand driving activity and premium rates.
Pay as you travel' insurance policy' is a mixture of a mandatory Third-Party (TP) cover, and a subsidized Own Damage (OD) cover that will be provided in various kilometer-based slabs. A central telematics data repository will be established in compliance with the regulations set by IRDAI, which will act as a pool for all software-related data. IRDAI will manage the repository to ensure that healthy practices are maintained, and the data is protected.
Insurance firms are expected to sell 10,000 insurance policies under the terms of the IRDAI to make this a daily part of their bid. As of August 2020, the following are offering pay as you drive insurance to customers:
- Edelweiss General Insurance
- Bharti AXA General Insurance
- Tata AIG General Insurance
- ICICI Lombard General Insurance
- Bajaj Allianz General Insurance
Features of a motor floater policy
1. Lower Car Insurance Rates
Motor insurance providers typically calculate the rate for car insurance based on the vehicle's characteristics (make, model, age, engine cubic capacity) along with other variables such as geographic location, voluntary deductibles, etc. In the event of an emergency, these considerations help to determine the car insurance provider's liability.
Logically, the odds of an emergency happening are greatly decreased if your vehicle is not regularly used, but your car insurance premiums are not reduced even then. With pay as you drive car insurance, a premium based on the actual use of your car is determined. If the vehicle is not frequently used, you can pay a lower premium rate.
2. Customised Cover as per preference
This insurance allows you to change your insurance policy according to your specifications. This package also offers you add-on covers, such as zero depreciation cover, roadside assistance cover, etc., in addition to the own damages, cover, and obligatory third-party cover.
According to your needs and preferences, these add-on covers expand the standard auto insurance cover, but in return for a higher premium rate. In addition, the insurance also allows you to move to a higher kilometer slab or recharge your slab cap if you have exhausted your kilometer limit during the policy tenure. If you are unsatisfied with a ‘pay as you drive’ insurance plan, you can also switch back to your insurer's standard car insurance plan.
3. Installation of free Telematics Device
Your auto insurance provider will mount a telematics system in your car for free if you buy pay as you drive car insurance. You would not be forced to pay for the telematics equipment or its installation. It’s also important to note that your car's health will be controlled by the telematics system, and the kilometer balance will also be recorded according to the chosen slab. A tab on your driving habits will also be kept by the unit and this can help you be more accountable and drive safely.
4. Floater Coverage for multiple cars
Under a single auto insurance policy, the floater cover helps you to have all your vehicles covered. Floater policy, therefore, turns pay-as-you-drive insurance into a package for individuals who own several cars. In other words, it helps by removing the need to purchase separate car insurance plans for each car.
5. Third-Party Coverage at all times
One of the big advantages of such policies is that, even when the kilometer limit has been exhausted, you get third-party coverage during the policy tenure. The third-party coverage is activated for an entire year after you buy the policy. If the slab balance is over and you do not plan to extend it before the expiry date of the scheme, you will forfeit your car's own damage cover. However, once the policy expires, the third-party cover on your car will continue.
6. Save big on premiums
At the time of renewing their pay as you drive insurance policy, some auto insurance providers often offer discounts to car owners. You will save on your premiums by at least 5 percent to a maximum of 25 percent, depending on the insurance provider, thereby reducing your auto insurance premiums even more.
Exclusions in a Motor Floater Policy
The exclusions of a pay-as-you-drive insurance policy are the same as standard car insurance policies. These exclusions are -
- Owing to natural calamities, auto insurance does not cover losses incurred. While your auto insurance covers collisions and incidents, you will not be entitled to claim any compensation for it if any harm happens to your car due to a natural calamity, such as an earthquake, tornado, or flood damage.
- Your insurance will compensate for the damage caused to your car if your car is vandalised or destroyed. Still, it will not pay for any theft or damage caused to your personal belongings kept in the vehicle, such as your laptop, phone, or other valuables. Make sure you keep them hidden out of sight to keep your belongings secure. If you have home insurance, so it will cover the loss of your phone or laptop. The insurance policy often does not cover vehicle accessories, such as the music system, navigation system, televisions, personalised seats, etc.
- With auto insurance largely covering car theft, you must ensure that when your car is stolen, you file a police report in order to claim sufficient compensation. However, if your car was stolen because of your own carelessness, such as leaving your key in the car, not locking your car safely, or entrusting it to other people, your claim may be denied on the grounds of carelessness by the insurer. So, for the protection and maintenance of your vehicle, exercise strict caution to avoid incidental exclusions in your car insurance.
- Your insurer will not have compensation for your vehicle's commercial use and for any harm caused to it when used for commercial purposes. You cannot make a claim if your car is used to move something relevant to your business, and it faces an accident unless your policy includes commercial vehicles. This field is known as 'Company Use' coverage and is not generally covered by individual auto insurance.
- If you drive someone else's vehicle or the car is borrowed, and a crash or accident happens, the claim for the damage will be denied. The insurer will pay only for claims that have been made in the name of the policyholder for the car registered. Similarly, the insurer will deny the claim on the same grounds if your partner drives your vehicle and faces an accident.
Calculation of premium for Motor Floater Policy
Take a look at how the insurance premiums are calculated:
- First, for the policy duration of one year, you need to declare the use of the car depending on the total number of kilometers your car would cover. You may choose one of the slab options offered by your insurance provider for vehicle use. Under each slab, the vehicle utilization cap will differ from one insurer to another. For example, Bharti AXA offers 2,500 Km, 5,000 Km, and 7,500 Km coverage slab options.
- Without charging any cash for it, your insurer would mount a telematics system in your vehicle.
- If you want to customise your plan by adding some add-on covers, you may do so now.
- The premium will be charged according to the distance slab you select and the add-on covers you choose.
- The telematics unit can monitor the kilometers traveled by car and indicate the balance of the remaining kilometers.
- It will also monitor how the vehicle is being used and the driver's driving habits.
- You will have to recharge it by calling the insurance company after the balance has been drained. Recharge is possible both between the tenure of the policy and at the end of the period of the policy.
Does the claims process differ from the claims process of regular motor insurance?
The process for filing the claims for a pay-as-you-drive policy does not differ from a standard policy. In the event of a mishap, the insured is expected to inform the insurance provider at the earliest and submit all the relevant documents and evidence. After the claim has been raised, the insurance provider would look into the validity of the claim and settle it accordingly.
Who should get such a policy?
The pay as you drive insurance was designed for the following types of persons:
- It is perfect for car owners who drive very little of their vehicles.
- It is suitable for individuals who own multiple cars and do not use both cars to the same degree.
- For people who often travel by public transport and seldom use their own vehicle, it is tailor-made.
- It is ideal for individuals who are frequently expected to drive out of the station and are unable to use their vehicle a lot.
Conclusion
Motor insurance will grow to become even more sensitive to the needs of consumers with the introduction of Pay-as-you-use policies. The change makes sense in unpredictable times with the government discouraging needless journeys and the advantages of working from home being discovered by companies and workers alike. By putting more and more cars under the insurance umbrella, the 'Pay-as-you-drive' model would certainly boost insurance penetration in the overall market.
