Usage Based Motor Insurance Premium- Fail to take off !!

Irrespective of the fact I drive 2000kms in a month and you keep your car in the garage for more time than not, we both end up paying the same premium for motor insurance.  Does it seem fair to you? Well, there were a lot of people who thought it was not fair that you should be charging people the same amount of premium irrespective of the fact how much they drive around as the risk is higher for a person who uses the car more that someone who doesn’t. Conventional auto insurance policies are perceived as unfair to low mileage and safer drivers as they end up subsidising riskier and high mileage drivers

They looked to the mobile phone industry where users are charged based on their talk time and data usage. If it is working in one industry, why should it not work in the motor vehicle industry also?

Wanting to change the current pricing model, many general insurance companies started conducting pilot studies as early as 2010, to see the viability of introducing such plans where a new technology called Telematics was installed in test cars. A GPS device was used to monitor the usage of the vehicle and driving habits of the car user were gathered to determine the motor insurance amount. The GPS device gathered data based on the mileage and routes taken. The insurance company then tried to price the cover based on these parameters.

And the verdict is in!

As per the latest news, the insurance regulator, IRDA has expressed the opinion that while it can be implemented, the Indian market is not currently mature enough to handle such a product.  The insurers also call this pilot study a non successful one as they attribute this failure to the low ticket size of motor insurance policies and relatively high cost of usage tracking devices. For example, the annual premium for a medium category private car is typically around Rs. 4,000 –Rs. 6,000. The GPS devise that needs to be attached to the motor vehicle to monitor the usage also approximately cost that much.  Moreover, many customers see attaching a GPS tracking device on their vehicle as an infringement of their privacy, as the data is send to an insurance company for analysis.

Though the idea is a brilliant one, especially for customers who drive their cars less, our market has to mature enough to accept this model of pricing. For the time being the insurance companies have decided to shelf this idea and accept the fact that while it may be working in international markets, the Indian population is a class apart!