Giving the PAYD (pay as you drive) discount based on historical usage is extremely useful to customers as there wouldn’t be any need for them to keep track of their odometer reading or top up their kilometres during the policy period, saysAkanksha Jain, Head – Motor Product, Digit Insurance.
In an interview with MintGenie, Jain says that the useof telematics devices is currently limited, and only a few vehicles come pre-installed with them.
Edited Excerpts:
Q. What is this concept of “pay as you drive”? How is this concept of insurance policy different from other vehicle insurance covers available in the market?
Pay-as-you-drive (PAYD) is a type of motor insurance cover where the premium is based on the usage of the insured vehicle. Under Digit’s PAYD add-on cover, if the policyholder has driven his or her car for less than 15,000 km in the previous policy year, he/she will be eligible to avail of a PAYD discount on the premium at the time of their policy renewal. The policy is designed for people who don’t drive their cars long distances and want to avoid paying higher insurance premiums.
Under a normal motor insurance Own Damage policy, the premium is typically calculated based on the type, make, age, and location of the vehicle. This does not consider how much the vehicle was driven in a year. However, the risk can be perceived by an insurer on the basis of the annualmileage of the vehicle driven by the customer. If a car is driven less, the chances of it being in an accident or being damaged are lesser compared to a vehicle that might be driven way more. However, a person who has a lower risk profile due to the vehicle being driven less ends up paying the same premium amount compared to someone who drives the vehicle more frequently and comparatively has a higher perceived risk profile. A PAYD add-on cover enables customers who drive less to seek better pricing on their motor insurance premiums.
Q. The “pay as you drive” cover offers a discount depending on the car usage as per the total distance covered, which is less than 15,000 km. Does this mean that vehicle owners driving beyond this limit cannot seek cover for damages when required?
It is important to note that the discount on the premium for Digit’s pay-as-you-drive cover is determined based on the usage of the policyholder in the preceding year. This simply means, the PAYD discount is offered to a customer by checking their odometer reading. Based on the vehicle odometer and age, the derived annual mileage comes out to be less than 15000 kmthen the customer can avail PAYD discount.
Giving the PAYD discount based on historical usage is extremely useful to customers as there wouldn’t be any need for them to keep track of their odometer reading or top up their kilometres during the policy period in case they exhaust or cross the prescribed kilometre barrier. This will also allow the customers to always be covered and claim for any accidental damage even if they have crossed the 15,000-kilometer threshold as the insurer will still provide cover for damages during the current policy year. However, the policyholder will not be eligible for the PAYD discount in the subsequent policy year if they exceed the mileage limit in the previous policy year.
Q. This is a tech-enabled concept that would help vehicle owners keep track of their driving habits. Do you think furthering this concept can help reduce the frequency of driving accidents in India?
By offering an incentive in terms of lower premium for low mileage users, the PAYD add-on acts as a nudge for the customers to drive less thus reducing road accidents. However, PAYD is a concept that offers discounts merely on the historical usage of the vehicle and does not currently track any driving habits of the customer. However, the insurance regulator has also allowed insurers to offer “pay how you drive” discounts based on the driving pattern of the customer. This concept is driven by technology and monitors policyholders’ driving patterns using telematics devices and can act as a further catalyst to reduce the frequency of road accidents in India by taking a few measures.
Providing policyholders with real-time insights into their driving behaviour, such as speed, braking patterns, and adherence to traffic rules, surely has the potential to help customers make informed decisions about their driving practices. The concept will also promote self-awareness and encourage safer driving habits. This could bring about a further positive shift in driving behaviour.
However, usage of telematics devices is currently limited, and only a few vehicles come pre-installed with a telematics device. However, as this slowly becomes a norm, more users will be able to seek better motor insurance premiums based on their good driving behaviour.
Q. This cover will benefit those who drive less frequently. Does not this keep you away from insurance buyers who have to drive long distances for work or other reasons?
Firstly, there are two angles to consider here. The concept of PAYD is designed to cater specifically to individuals with limited driving activity. Earlier, if a policyholder covered a distance of 10,000km annually and another person covered 40,000km in a year, they’d both pay the same premiums. With PAYD, insurers are able to offer customised policies only to policyholders who drive less in a year. There is a huge population whose vehicle usage is very limited. For example, people living in metros like Delhi or Mumbai prefer travelling by metro or train. In households that have two or more vehicles, the usage of their second car is usually less. The vehicle is also driven less by senior citizens or people living in tier-2 or tier-3 cities and towns who commute only within their city limits. A discount like this benefits a huge cohort of people as their vehicles are driven less in a year.
The PAYD feature does not preclude insurers from accommodating those with extensive travel requirements. People who drive long distances for work or other reasons still end up paying the current prevalent premium as they are not being charged a higher premium and are offered all three types of motor cover — Own Damage, Third Party, and Comprehensive.
Q. Too many vehicles are getting damaged due to floods and other natural calamities. What advice do you have for people buying vehicle insurance for the first time or seeking renewal of their existing insurance plans?
Purchasing the right motor insurance policy could be confusing, especially with the rise in vehicles getting damaged due to floods and natural calamities. It is essential to choose the right policy that adequately protects your vehicles. Here’s some advice for first-time buyers or those seeking insurance renewal.
Choose comprehensive cover: Opting for comprehensive insurance cover rather than basic third-party (TP) coverage can prove to be of immense value. A mandatory TP cover offers protection only against damage to a third party, but a comprehensive cover includes protection against a wide range of risks, including flood damage, natural disasters, theft, and accidents.
Know your policy: Carefully read and understand the terms and conditions of your policy before purchasing or renewing. It is essential to review the policy to be aware of any exclusions. Ensure you understand what risks are covered and which are not.
Evaluate the insurer: Before purchasing or renewing the policy, ensure to do some research on the insurance product as well as the insurer. Check for insurer’s claim settlement ratios, customer service reviews, and list of cashless garages and choose a company that provides 24-hour assistance and addresses customer grievances quickly.
Declare modifications: If your vehicle has been modified or customised, ensure you declare these modifications to the insurer. Failure to disclose modifications might result in claim denials.
Consider add-ons: Explore additional coverage options like engine protection, roadside assistance, zero depreciation, return to invoice, tyre protection, etc. These additional features in your policy can provide extra financial security under various circumstances.
