As the pace of digital adoption gathers momentum, industries across the globe are ramping up product innovation to exceed ever-evolving customer needs and preferences. One such example is the insurance industry, which is reinventing itself by embracing technological advancements such as artificial intelligence (AI) and machine learning (ML) to introduce highly personalised insurance solutions.
Among these, the introduction of usage-based insurance (UBI) solutions in the motor segment has undoubtedly been the highlight in the recent past, warranting a closer look at how it benefits those with frugal vehicle usage and safe driving habits.
UBI: A step towards hyper-personalisation in car insurance
With the pandemic inducing a rapid shift towards remote working, Indian insurers quickly responded by introducing usage-based car insurance covers for vehicle owners whose usage had fallen dramatically. By assessing the vehicle’s past usage, claims history and projected mileage, insurance companies could reward owners by offering lower premiums in proportion to the actual usage for the insured period.
Moreover, policyholders can increase the desired distance limit during the policy period, with only a difference in premium amounts required to be paid to enjoy continued insurance coverage. It is ideal for those who use their car sparingly or have more than one car within the household, UBI has been gaining increasing traction among urban Indian consumers, both in the commercial and personal car segment.
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Benefits of choosing UBI over traditional motor insurance covers
In addition to incorporating a fairer pricing model, insurers have gone a step ahead to introduce different variants that cater to nuanced customer requirements.
For example, while pay-as-you-drive (PAYD) car insurance solutions have premiums proportionate to the mileage covered, pay-as-you-go (PAYG) insurance covers offer policyholders to choose from available mileage options with the flexibility to purchase additional kilometres coverage.
Pay-how-you-drive (PHYD) covers calculate premiums based on usage patterns and driving habits, thereby ensuring that those with safer driving habits pay lower insurance premiums. By integrating telematics, AI and ML to fortify their risk assessment and premium computation models, insurers are not only unlocking significant cost savings for car owners but also encouraging them to inculcate safe driving habits.
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Key factors that can lower your UBI premiums
Designed for value-conscious consumers, UBI is currently being provided as an add-on cover by leading Indian insurers, and its validity aligns with that of the underlying comprehensive insurance policy. Car owners that drive less than 10,000 km per year can save a high double-digit percentage of their own damage insurance premium, with the added flexibility of being able to increase the declared distance anytime during the policy period.
While each insurer’s discount is calculated based on the mileage covered, additional savings in the form of a no-claim bonus (NCB) discount are available in the next policy year if no claims are raised in the current policy period. That said, it is vital that policyholders track if the declared usage limit (10,000km) is exceeded during the policy period since the own damage cover stands expired in such scenarios.
By paying an additional premium for a new higher declared usage limit on a timely basis, the policyholder can ensure continued insurance coverage and no impact on any applicable NCB. Thus, the flexibility to customize a UBI add-on cover along with the direct premium savings is bound to appeal to a majority of Indian car owners, especially those with low usage patterns and who follow safe driving habits.
The author is managing director and CEO, Universal Sompo General Insurance. Views are personal.
