The motor insurance industry in India is witnessing significant progress and innovative technological developments in recent years. One of the pioneering concepts that have emerged in this industry is usage-based car insurance, a revolutionary approach that can potentially transform the future of motor insurance. This concept relies on cutting-edge technology, including telematics and RF (Radio Frequency) technology, to comprehensively understand a driver’s behaviour and driving patterns, subsequently offering insurance premiums tailored to an individual’s driving habits.
In usage-based car insurance, the premium rates are determined based on the driver’s style and nature of driving. This innovative insurance technology not only rewards safe and responsible drivers with lower premiums but also incentivises reckless drivers to improve their driving behaviour. This approach benefits safe drivers, who can obtain four-wheeler insurance policies at a lower cost and also contributes to promoting safe driving practices among all motorists.
Usage-Based Car Insurance in Detail
Traditional vehicle insurance calculates premium rates using historical driving records and general traffic events. In contrast, usage-based car insurance, or telematics insurance, employs a radically different approach. This method utilises live data from the driver’s vehicle, obtained through technologies like Telematics, RF and GPS (Global Positioning System), to determine the precise cost of insurance. It relies on accurate and real-time data, so it is advantageous for drivers and insurers.
UBI assesses driver actions and behaviours in real-world situations and bases premium rates on these habits. This system allows drivers to have more control over their insurance costs. By adopting safe driving practices, they can enjoy lower premiums, while reckless driving leads to higher insurance costs.
Working Principle of Usage-Based Car Insurance
The working principle of Usage-Based Car Insurance is fundamentally different from traditional insurance models. Factors such as driving distance, mileage, location, time and driver behaviour play a pivotal role in determining the cost of insurance. Telematics devices installed in the insured vehicle collect data on driving habits, which is then transmitted directly to the insurance company. This data includes the distance covered, usage time, specific routes taken, hard braking and cornering incidents, airbag deployment, rapid acceleration, braking history, acceleration patterns and more.
The insurance company uses this comprehensive data to calculate the premium cost for each driver. The insurer collects this data from the vehicle’s odometer readings and in-vehicle communication devices. In essence, usage-based car insurance monitors an individual’s driving behaviour and determines insurance premiums accordingly. This approach emphasises transparency, ensuring that every driver gets charged fairly based on their specific habits behind the wheel.
Telematics Devices Used in Usage-Based Motor Insurance
One can employ various telematics devices to implement usage-based car insurance effectively, such as —
- Smartphones with Mobile Apps: Some insurance companies offer mobile apps to collect driving data.
- 12V Dongles: These small devices plug into the vehicle’s 12V power outlet (cigarette lighter) and collect data for analysis.
- Bluetooth Connections: Bluetooth technology connects vehicles with external devices, such as smartphones or dongles, to transmit driving data.
- Black Boxes: These compact devices are installed in the vehicle and record driving data for later analysis.
- GPS Devices: GPS technology tracks the vehicle’s location and driving routes, providing valuable data for insurance calculations.
- Onboard Sensors: Modern vehicles often come equipped with onboard sensors that monitor driving behaviour and relay data to insurance companies.
Steps of Usage-Based Car Insurance
The process of implementing usage-based car insurance involves certain steps:
- The insurance company collects comprehensive information about the driver’s behaviour from telematics readings.
- The collected data gets evaluated to determine the insurance premium charge for that particular driver.
Example of Usage-Based Car Insurance
You can consider the following scenario to understand how usage-based car insurance works:
Two drivers are travelling on the same road. One driver operates the vehicle at a high speed, while the other drives considerably slower. Although the faster driver covers more distance in one hour than the slower one, the speedier driver will pay a higher premium rate. It is because the slower driver adheres to traffic rules and practices safe driving habits, reducing the likelihood of accidents or mishaps compared to the faster driver.
Various Types of Usage-Based Car Insurance
Usage-based car insurance comes in several categories, each based on specific driving details —
- Pay-As-You-Drive: Insurance coverage is determined primarily by the actual distance travelled by the vehicle, with data gathered from the vehicle’s odometer readings.
- Pay-How-You-Drive: Insurance coverage is calculated based on factors such as mileage collected from GPS data or the time taken to cover a specific distance. This information gets gathered through vehicle-independent modules that transmit data via RF technology or cellular connections.
- Pay-As-You-Go: This variation of UBI considers various data points, including the time of day, driving actions, time taken to cover a distance and the historical risk factor of the road.
- Distance-Based Insurance: Insurance coverage is determined based on the actual distance travelled and, often, gets calculated using GPS data.
Benefits of Usage-Based Car Insurances
Usage-based car insurance offers numerous benefits, not only for drivers and insurers but also for society and the environment —
- Promotes Safe Driving:By continuously monitoring and assessing driving habits, usage-based car insurance encourages drivers to adopt safer behaviours on the road, ultimately reducing accidents and improving road safety.
- Customised Premiums:Drivers have greater control over their insurance premiums. Those who practise safe driving habits can enjoy lower premium costs, while risky driving behaviour results in higher premiums.
- Enhanced Road Safety:Usage-based car insurance contributes to overall road safety. More cautious drivers are less likely to cause accidents or engage in reckless driving.
- Reduced Congestion: With an emphasis on safe driving and fewer accidents, road congestion and traffic delays can be minimised.
- Environmental Benefits:By encouraging responsible driving, usage-based car insurance contributes to reduced emissions and a cleaner environment.
- Reduced Crime Rate:This insurance technology can help track and locate stolen vehicles, reducing car theft and related crimes.
- Cost Savings:Drivers can save significant money on insurance premiums by adopting responsible driving habits.
- Empowers the Driver: Usage-based car insurance allows drivers to influence their premium costs actively, providing them with a financial incentive to drive safely.
In summary, usage-based car insurance represents a paradigm shift in the industry. It uses advanced technology to promote safe driving, reduce accidents and give drivers greater control over their insurance premiums. This revolutionary approach benefits drivers and contributes to societal well-being and environmental sustainability. Whether you’re considering comprehensive car insurance or third-party car insurance, UBI offers a transformative way to approach motor insurance, ensuring that responsible drivers get rewarded and our roads become safer for everyone.