Linking vehicle insurance to driving quality a good idea
The insurance regulator, Irdai, would do well to accept the recommendation of its working group to link motor-insurance premiums to driving history. The working group has plumped for a points-based system, in which, every time a traffic violation is reported for a person, the insurance premium for the vehicle registered under their name goes up. The draft report submitted by the group says that the Insurance Information Bureau (IIB) will coordinate with various states’ traffic-police and calculate violation points, based on which companies will determine premiums. It will also build the IT interface that can relay this data to general insurers.
While the IIB will record historical traffic violations, it will only do so for two years. So, a person’s traffic-violation history will impact only two insurance cycles. If the person’s driving behaviour improves in the meantime, subsequent renewals would not be as costly. Despite possible hiccups, this seems a welcome idea for a country that, as per the WHO, accounts for 6% of global road accidents despite having just 1% of the world’s motor vehicles.
At present, the premium is based on the make and model of the vehicle. While the point system is a step up, India needs to move fast to integrate telematics. In the UK and the US, insurance companies have been relying on “black box” fitted in the car to ascertain driving habits. The black box relays GPS information, driving speed and driver behaviour to calculate premiums. If a driver keeps on overspeeding on a repeated basis, premiums are raised. Companies have also developed games to alert drivers about their behaviour.
The drivers are asked to play a simulation game on the same route they usually drive, alerting them on instances of over-speeding and lane violation. While Irdai’s annual report in 2019 had recommended adopting telematics for motor insurance, it is yet to be implemented in India. The obvious hiccups—two or more people driving a vehicle, chauffeur-driven vehicles, etc, could complicate premium calculation—are significant, but penalising the vehicle owner will ensure that the nudge towards safer driving is passed along a command-chain. Integrating phone data to vehicle telematics can also be used to ascertain onus.
The use of data and technology in insurance should not be limited to motor insurance. Health insurance products can adopt a similar strategy by using health trackers. Companies have been giving their customers health bands to track their progress. They build incentives for customers who exercise more or log a certain number of steps on their health tracker by lowering their premiums. This needs to become an industry standard.