In today’s digital era, technological advancements are reshaping almost every industry. The Indian insurance sector is also witnessing a huge shift that is changing how we perceive insurance coverage. Traditional insurance coverage is designed with a ‘one-size-fits-all’ model, and pricing based on general risk profiles is no longer considered effective. With the integration of cutting-edge technologies like the Internet of Things (IoT) and artificial intelligence, coverages are now designed based on data-driven insights. This makes them highly personalised, fairly priced, and most effective. Yes! Usage-based insurance policies like these are gaining momentum. Read on to know more!
What is Usage-Based Insurance?
Usage-based insurance is a unique insurance type in which insurance cost is determined based on specific data collected on the behaviour, usage, and habits of policyholders. In usage-based auto insurance, which is also known as telematics auto insurance, various technologies are used to track vehicle usage and driving habits. Data on various metrics, such as mileage, speed, driving time, braking patterns, etc., are collected to analyse the risk. Insurance companies tailor auto insurance coverage based on the real-time data collected and price them fairly based on the usage and actual risk.
There are various types of usage-based insurance (UBI) available – Pay as You Drive (PAYD), Pay as You Go (PAYG), and Pay How You Drive (PHYD). You can select suitable UBI insurance based on usage and what parameters are considered in the policy for pricing. In PAYD, distance driven is the major parameter for premium calculation. PHYD takes into account driving patterns for premium calculation. Lastly, PAYG considers both distance-driven and driving patterns for pricing. You can compare various telematic insurance plans on the Secure Now platform to make a rational decision.
How does Usage-Based Insurance Work?
Let us understand the concept of usage-based insurance through an example. Let’s assume Mr. A and Mr B use their car to travel to the office every day, which is almost the same distance. However, Mr. A is an experienced driver, maintains a speed limit, and drives smoothly. On the other hand, Mr B has a new driver who applies sudden brakes, and he has yet to become an expert at driving. In this scenario, the insurance company charges a lesser premium to Mr A for insurance coverage than Mr B as data shows B has a higher probability of making claims as he is a new driver. You can see premium is completely based on data-driven insights.
Wondering how these data are collected? It is an automated process. The insurance company can track your driving-related or health-related data using various technologies. Some of them are:
- Plug-in-device: A small device (like a pen drive) that tracks the usage and can be easily self-installed in your car.
- Wearable devices: Smartwatches and fitness bands can track overall activity and health (heart rate, steps, calories, etc) for pricing the telematic health insurance.
- Mobile app: The insurer asks you to download a mobile app on your smartphone to track your car’s movement. Similarly, in telematics health insurance, apps installed can track your sleep, steps, and overall activity through built-in sensors to collect the data needed for risk assessment. However, this may not be an accurate and reliable option.
- On-board or OBD sensors: These sensors can be self-installed onto the car to track the driving data. The information can also be shared on a real-time basis.
- Telematic devices: Your insurer provides a Blackbox that you need to get installed in the car. The device records all the driving-related information and provides accurate data to the insurance company.
- GPS device: Advanced GPS shares the driving information and real-time data with the insurance company.
In India, the insurance regulator – IRDAI has also played a pivotal role in embracing these innovative products to cater to the needs of rapidly changing diverse demands in the market.
What are the Benefits of Telematics Insurance?
This innovative insurance type offers numerous benefits to the policyholder. Here are some of them:
- It helps you get highly personalised coverage based on your usage of your vehicle ( car insurance) and a healthy lifestyle (health insurance).
- It rewards safe driving skills and a healthy lifestyle in the form of lowered premiums for auto and health insurance, respectively. It also encourages good driving habits and promotes preventive healthcare via data insights.
- It offers transparent pricing on the insurance and boosts customer loyalty with the customised rate of premium.
- It makes claim management easier for insurance companies and reduces fraudulent claims.
- Specifically for auto insurance, if you do not use your vehicle frequently you can pay less premium based on the usage.
Conclusion
In conclusion, usage-based insurance policies are rapidly gaining traction due to their fair-pricing, cost-effective, personalised, and data-driven approach. Products like UBI insurance are not only aligned with global trends but also cater to the unique challenges faced by diverse Indian customers.
FAQs:
What role does the Insurance regulator play in promoting innovative products like telematics insurance?
The Insurance Regulatory and Development Authority of India allowed insurance companies to experiment with tech-driven products by introducing sandbox regulations that promoted innovation.
How does telematics health insurance work?
In the case of health insurance, data on health-related metrics such as BP, heart rate, physical activity, sleep patterns, etc, are collected using devices like smartwatches, fitness brands, mobile apps, continuous glucose monitors, pulse oximeters, smart scales, etc. The collected data is analysed, and personalised health plans are curated and priced accordingly.
