Time to renew car insurance? Consider cheaper 'pay-as-you-drive' policy

KEY HIGHLIGHTS:

• At least 5 insurers have launched usage-based car insurance policies
• Premium on such policies is cheaper than the regular policies
• You can choose a kilometre-based package, and pay accordingly
• OD will be covered till you exhaust your package; TP will remain valid throughout the year
• A couple of insurers will reward you for safe-driving
• Select usage-based policies only if you can actively track your kilometres

The motor insurance industry has moved to much-awaited usage-based insurance policies. While the regulator IRDA had allowed such policies under regulatory sandbox in January last year,  the launch has happened just at the right time when most of us are working from home with bare minimum movement on the road. When you are hardly driving, renewing your expensive own damage cover may not appear appealing. The good news is at least five insurers - ICICI Lombard General Insurance, Edelweiss General Insurance, Bharti Axa General Insurance, TATA AIG General Insurance and Bajaj Allianz General Insurance - have launched 'pay-as-you-drive' car insurance in which there are kilometre-based packages instead of standard one-year comprehensive coverage, irrespective of whether you drive daily or once a week. Since it's a sandbox product, the insurers have launched it on a pilot basis and are restricted to sell only 10,000 such policies in a span of six months.

How 'pay-as-you-use' model works

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 will be offered in three slabs of kilometres -- 2,500 km, 5,000 km and 7,500 km. The premium will be fixed on the basis of the package selected, which could be 20-30 per cent lower than the standard one-year OD cover. For example, Bharti Axa is giving a discount of 25 per cent for 2,500 km slab, 15 per cent for 5,000 km and 10 per cent for 7,500 km slab against the regular comprehensive policy.

You can top up your plan if you are about to exhaust your kilometres. In case of Tata AIG, you can carry forward the unused top-up kilometres at the time of renewal. "Only top-up kilometres will be carried forward, not the remaining kilometres of the package bought," says Parag Ved, Head and EVP - consumer line, Tata AIG General Insurance.

Edelweiss General Insurance policy is slightly different in the sense that it will let you switch your motor insurance 'on' and 'off' based on the usage. It will also cover multiple vehicles under a single policy as it is a floater policy. "Unlike a traditional motor OD policy, insurance premium for Edelweiss SWITCH will be calculated on the basis of age and experience of the driver. The policyholder will need to pay the premium only on the days she uses the vehicle as per the pay-as-you-use model," says Sajja Praveen Chowdary, Motor Business Head, Policybazaar.com.

ICICI Lombard's app-based 'pay-as-you-use' policy will monitor your driving behavior and reward you for safe driving practices. It will notify you if you drive fast and will show the location of the vehicle using GPS technology. "Customers will be able to opt for this program for a period of less than a year, most likely every three months," says Sanjay Datta, chief-underwriting and claims at ICICI Lombard General Insurance.

Just like Edelweiss, ICICI Lombard will also have floater option, that is, having a single policy for multiple vehicles by having different sub-limits for each vehicle.

How insurers will track distance

Either insurers will ask you to share your odometer reading with them or they will install a telematics device in your car which will track the kilometres driven. "Our app-based device 'AutoSafe' has many features which inform consumers about distance covered to how you drive along with GPS-based anti-theft tracking. The information collected is evaluated over time and each driver cum policyholder is allocated points based on performance," says Ved of Tata AIG.

Who should buy it

If your existing policy is about to expire and you know you are unlikely to take your car out frequently in the coming days, you can consider this policy. "Package-based 'pay as you use' will come handy for those who may not travel much but drive daily, while Edelweiss' pay-per-day-basis policy will be useful for those who seldom take their car out, but travel a long distance," suggests Chowdary of Policybazaar.com.

The only issue with such policies is in case you have exceeded your limit and are yet to endorse the top-up with the insurer, the OD cover will not be applicable. "Although TP will still be valid, but if own damage happens after exhausting your package, it will not be covered," says Chowdary.

"In case of Edelweiss, what if you forgot switching on the policy when you start driving? Accidental damage will be covered only when the policy is switched on, although cover against fire and theft will be provided 24/7/365," he adds.

Ultimately, it's your choice, whether you want convenience of one-time payment and carefree coverage for the whole year or are comfortable with proactively tracking your kilometres and being conscious about keeping your policy running.

Currently, the insurers are selling these policies via agents and distributors to select customers. You can buy Edelweiss and Bharti Axa policies from Policybazaar. Ved of Tata AIG says interested people can connect with them by visiting the 'contact us' section of the website to provide details.

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