While the third-party (TP) premium depends on your vehicle’s cubic capacity (CC), the motor own-damage is calculated basis the RTO/city you reside in and the make year and model of your car.
By Sajja Praveen Chowdary
You may not be taking your car to office every day, yet you are paying the same premium as your friend who drives his car for at least 90 km/day. Seems unfair, right? This is because while the third-party (TP) premium depends on your vehicle’s cubic capacity (CC), the motor own-damage is calculated basis the RTO/city you reside in and the make year and model of your car.
This is an important reason why a person who drives his car for 10,000 km/year pays the same premium as a person who drives the same make and model car for just 2500 km/year. In January this year, the regulator in total approved 37 various proposals under the regulatory Sandbox amongst which one was ‘Pay As You Drive’ motor insurance policies. Regulatory sandbox is a well measured environment where insurers evaluate, monitor or test innovative financial products before their full-fledged launch for customers. The prime objective of Irdai behind promoting the regulatory sandbox method is to recognise innovative ideas to foster growth in insurance sector and ensure protection of the policyholders in every possible aspect.
Understanding ‘Pay As You Drive’
Currently, premium for the own-damage component in a motor insurance policy is based on the age, make and the vehicle model. However, under the ‘Pay As You Drive’ model, the premium will also be calculated based on the kilometers covered or the period of time they intend to drive their car. The ‘Pay as You Drive’ insurance product will be a combination of both—comprehensive own damage (OD) and third party (TP) policy wherein the TP premium will be decided as per the regulator’s norms while the comprehensive own damage premium will be calculated basis how many kilometers you intend to drive your car in a given time period.
Customers who believe they might drive their car beyond 2,500 or 5,000 km will have the option of moving to a higher slab in the middle of the tenure or even move to a regular motor insurance policy that provides coverage for unlimited kilometers. However, the additional derived premium in both the circumstances will be payable by the customer.
In case the customer exceeds the kilometer up to which the motor insurance policy is bought, the TP insurance cover will still remain active while there would be no coverage provided for OD cover in case of a claim. Only TP claims arising during the policy tenure would be treated as per the existing liability claims practice.
Buying ‘Pay As You Drive’ Policy
Customers may buy the ‘Pay as You Drive’ policy online by providing the odometer reading of their vehicle along with Know Your Customer (KYC) details, and filling up a customer consumer consent form. You may choose a slab as per the usage of your car and the insurer will take a note of the existing odometer reading and cover you for the next slab of kilometers. Insurers are offering these policies through their websites, online insurance aggregators and other distribution channels.
As the usage of ‘Pay As You Drive ’insurance product varies from customer to customer, the product right now seems to benefit those who drive less or have multiple cars. It is highly useful for those who even after having a vehicle at home commute daily via public transport or rarely travel beyond city limits. The ‘Pay as You Drive Model’ will undoubtedly enhance insurance penetration in the overall sector by bringing more and more vehicles under the insurance umbrella.
The writer is head, Motor Insurance Business, Policybazaar.com. Views expressed are personal