Buying car insurance is a no-brainer. And if that is not enough, the authorities generally have a rule that all cars plying on road should mandatorily have valid car insurance. But while car insurance has been available for years, now there are interesting options available.
Think of it like this. No two car drivers are the same. Cars are also different. But while this was already part of the assumptions in the insurance industry, now another factor is being used to dynamically offer different premium rates to insurance buyers.
And those two factors are the amount of usage and type of usage.
What this means is that insurance regulator now allows car insurance policies with premiums that are linked to the number of kilometres you drive and also your quality of driving.
That is, offering usage-based insurance (or UBI). There are different versions like pay as you drive (or PAYD) and pay how you drive (PHYD). This usage-based insurance calculates insurance premiums depending on the actual type of driving rather than charging a fixed amount based on assumptions made in a traditional car insurance policy.
Pay As You Drive Car Insurance
So, if your car usage is less, then you get a bigger discount on base premiums. And if you drive better (?), then also you pay lesser premiums.
For example – Let’s say that car insurance is available at Rs 10,000 annual base premium. But this is when you drive more than 10,000 kms in a year. But if you drive between 7500-10,000 kms, then you get a 10% discount. If you drive between 5000-7500 kms, then you get a 15% discount. For 2500-5000, you get a 20% discount and about 25% off if you drive less than 2500 kms a year.
So, if you don’t use your car too much, then you won’t have to shell out the full premium for car insurance and you can get discounts.
That was about the dependence of premiums on your car mileage.
You can also get discounts based on how you drive. It is like saying you will get a discount on life insurance premiums if you are fit and live a healthy life. And rightly so. But how will this be decided as to how exactly you drive? This can be quite subjective and if you were to ask anyone, they will always say they drive best! The solution here is obvious – technology.
For this, a telematics device will be fitted in the car to monitor the condition of the vehicle as well as the general driving habits of the driver. The accumulated data (like driving speed, acceleration rate, braking pattern, and whether using a mobile phone while driving, etc.) will then be analyzed to decide how well or otherwise the driver drives. This will be used to either give discounts to good drivers or to penalize bad drivers!
Of course, there are issues of privacy when you get this device fitted in your cars. But that is the cost of potential discounts that you want. Nothing comes for free. Isn’t it?
And now a days, with the rise of IoT, everything is sort of connected to everything else. So like mobile phones, even our cars have become smart. You will often hear the terms like ‘Connected Car’, etc. So, these cars have in-built functionalities to capture the data like driving and breaking patterns, driver awareness, etc. So soon, there won’t be even a need to install a telematics device in cars.
Who is Suited for Pay-As-You-Drive Car insurance?
This type of usage-based insurance is most likely to benefit those who drive very little. Given the changing nature of jobs these days, this may include those who:
- Generally, work from home now.
- Senior citizens who don’t take out cars often and even if they do, the distances travelled are not too much
- Take public transport like metro, bus, etc. to go to work and rarely use their own vehicle
- Have multiple vehicles and use most of them rarely
But how much can you actually save using these new versions of car insurance?
How much can you save using Pay-As-You-Drive Car Insurance?
In my view, not much.
You generally get just a 10-20% discount on premiums. That too not on the full premium but the own damage premium. There is no discount offered for the mandatory third-party premium or any other add-on covers.
But I know some of my friends who have multiple cars and they don’t use most of them often (as some of them are just for show off!). So, if you are someone whose car stays in the garage for most of the time, then you can save some money.
While usage-based car insurance might be a new thing in countries like India, these have been available for a long time in several countries of the Americas and Europe. And many of the insurer companies use UBI to offer cheapest Indiana car insurance as well as in different regions across America.
While this is an interesting move and your car insurance premium could get cheaper with the pay-as-you-drive option, the fact is that your savings aren’t that much when you consider everything. Just a few thousand is what you can save. Which is still fine and may attract more people towards insurance and more importantly, incentivize safer driving.
So that was about how you can pay less premium on your car insurance if you drive l and safely (2022) using Pay As You Drive Auto Insurance.