In lockdown when most of us worked from home and our cars did not hit roads, renewing motor insurance premium did not seem like a good idea. This is exactly when a couple of insurers launched the pay-as-you-go policy in which you pay premium based on kilometres you cover. While the policies did receive good interest from customers, Kamesh Goyal, Chairman, Digit Insurance is not gung-ho on such policies.
Digit Insurance, ICICI Lombard General Insurance, Edelweiss General Insurance, Bharti Axa General Insurance, TATA AIG General Insurance and Bajaj Allianz General Insurance, etc had received IRDA approval for pay-as-you-go policy under sandboxing.
"Pay-as-you-go became a big hit for us when we launched it around the lockdown. During lockdown, people wondered when their cars are parked why should they pay the full premium. Fair point. Most people preferred kilometre-based motor insurance instead of full usage one. It was consumed quite fast. We have filed for the regular product now," says Tapan Singhel, Managing Director & CEO at Bajaj Allianz General Insurance.
Goyal of Digit Insurance disagrees. "In India, vehicles are usually parked on the road, hence prone to accidents. Then you have cases of cyclone and floods. So, whether you drive or not, you can always have claims. In fact, during COVID times - barring April - we had started seeing vehicles being stolen from May onwards. So, when you look at overall basis, there is not much savings in terms of insurance premium just because you are driving less," says Goyal.
Giving a customer's perspective, he says that he doesn't see substantial savings in pay-as-you-go policy. "Around 20-25 per cent claim experience is happening due to usage, so the premium you can give to customers on such policies might just be small and not worth it," he adds.
Explaining about human tendency of being forgetful about renewing policies, Goyal says, "What if someone crosses his kilometer limit, forgets renewing the policy and then an accident happens? His car will not be insured in that case," says Goyal.
According to him, 30-40 per cent of private cars or two-wheeler insurance policies lapse in yearly renewals. "Expecting customers to top up in time is impractical. Such policies have not really taken off in most countries."
Giving a global example, Goyal says: In Germany, the largest market of motor insurance in Europe at least, less than 0.1 per cent of vehicles have gone to pay as you use model.
Pay-as-you-drive policy is a combination of comprehensive own damage (OD) and third party (TP) cover, in which the mandatory TP coverage will be standard as per the insurer, while discounted OD cover is offered in three slabs of kilometres -- 2,500 km, 5,000 km and 7,500 km. The premium is fixed on the basis of the package selected, which could be 20-30 per cent lower than the standard one-year OD cover.
Goyal says due to competition motor insurance premiums have anyway been coming down. "Why do we need pay-as-you-go policy when premiums are not that steep," says Goyal.
Why did Digit Insurance file for pay-as-you-drive policy in the first place for IRDA approval? "We don't want to launch it for private vehicles, but we do have plans to have it for commercial vehicles or expensive private vehicles," says Goyal.
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