What is Usage-based Insurance for Private Cars?
Car Insurance is protection against losses arising from accidents or mishaps. While accidents are unintentional and unexpected, certain driving parameters can increase/decrease the possibility of an accident. Until now, all drivers were considered equal since there was no process to differentiate between safe and risky drivers. Usage-based car insurance allows insurers to assess your driving pattern and increases or decreases the premium accordingly. Let us take a look at how this works.
Usage-based Insurance in Private Car
A car insurance company planning to offer usage-based insurance often uses telematics to measure some important aspects like:
- How much you drive your car
- Where you drive the car
- How you drive the car
The idea is to assess the possibility of an accident based on these parameters. A telematics device is plugged into your car to make observations about the distance travelled, the health of the vehicle, and driving patterns (how you accelerate/brake, etc.). The insurer collects the data from your car using the telematics device that allows the company to assess the risk profile of the driver. This enables them to offer rewards to safer drivers which is usually in the form of a discount on the premium.
One of the ways in which insurers offer usage-based insurance is a flexible kilometre-based package. This allows car owners to save on premiums as compared to the traditional policy models. Usually, insurers offer kilometre packages for a fixed premium amount. For example, you can buy a kilometre-based package for 2500 kilometres for a fixed premium. Once you exhaust the kilometres, you can top it up by purchasing additional kilometres. This can help you save some crucial rupees as premium.
Many insurers also consider aspects like how often you speed or how hard you brake. A telematics device can also call emergency assistance within no time if the vehicle gets significantly hit or if the driver pushes a button. Also, since the device usually has an inbuilt GPS, it can share essential information with emergency services within no time.
Usage-based Insurance is gaining traction
In recent years, usage-based insurance plans have been increasing in popularity. Not just in India, but around the world, insurers are offering these plans to help car owners get the best coverage for the least premium. Since these plans use real-time data to decide the premium amount, they can provide tailor-made insurance plans to car owners.GPS embedded in telematics devices can help locate a car that can come handy if the car is stolen.
In fact, on most occasions, insurers go through a lot of hassle to understand how exactly the accident occurred. Telematics can help them know about the accident or any injury and reduce the claim settlement time.
How can usage-based insurance benefit car owners?
As a car owner, you pay a premium to protect yourself against financial losses arising from damages to the car, self, or third-party due to an accident or a mishap. You also get financial protection for damages to your vehicle due to natural or man-made disasters. However, traditionally, the premium was not calculated taking your safe driving skills into account. With usage-based insurance, you can be assured that if you are taking extra care to drive safely, then your insurance company will acknowledge it and offer a discount on the premium amount.
Also, if the insurer is using a telematics device, then you can also benefit from GPS tracking and location-based accident assistance too. Insurance companies link this device to a mobile app that records all information and generates health reports of the vehicle. The company assesses your performance over time and allocates points for safe driving. This also works as a motivator to drive safely as it directly translates into savings.
In India, car insurance is mandatory, according to the Motor Vehicles Act, 1988. While the Act mandates a third-party liability cover and personal accident cover, there has been a steady increase in the number of people opting for comprehensive policies that offer own-damage protection too. Major insurers like Tata AIG offer amazing add-ons and customizations to the plans to make them perfect for your needs. However, the method of calculating premium was based on traditional models.
With usage-based plans, insurers can now offer benefits to policyholders who are less likely to be in an accident due to their safe driving skills and/or lesser use of the car. These plans are launched under the Sandbox regulation of the Insurance Regulatory and Development Authority of India (IRDAI). In the near future, car insurance is set to be more intuitive and personalized based on usage-based plans.