IRDAI's Motor Policy Add-On To Aid Usage-Based Premiums

The government's decision to allow general insurers to offer add-on to the basic own damage policy will boost utility-based insurance purchases and encourage safe driving habits.

In a circular issued on June 5, the Insurance Regulatory and Development Authority of India permitted insurance companies to introduce 'pay-as-you-drive', 'pay-how-you-drive' and single floater policy for a retail policyholder's multiple two-wheelers or cars.

These optional covers, subscribed on an annual base, can be clubbed with the basic policy by paying a premium. The add-on, the regulator said in the circular, will help motor own damage policy to penetrate deeper in the country.

"This long-awaited advancement by the IRDAI is a transformational development in the motor insurance category," said Sanjay Datta, chief, underwriting and claims at ICICI Lombard General Insurance Co.

"In the course of the digitalisation of the insurance ecosystem, the add-on variants 'pay-as-you-drive', 'pay-how-you-drive' and 'same-owner-floater' policies for two-wheelers and four-wheelers are a major leap and will enable a utility-based cover to the generic motor insurance products," Datta said.

TA Ramalingam, chief technical officer at Bajaj Allianz General Insurance, said the new offering is a usage-based cover as an add-on to the own damage policy, giving additional protection based on driving pattern or vehicle usage.

"Customers do not necessarily use their vehicles in a similar manner," he said. "This means, for example, if you wish to undertake a cover based on the number of kilometers you drive your vehicle, then you can opt for this cover."

Datta also said that in the past, an insurance product and its premium would "vary depending on the type or brand of car being used by the customer, but with these add-ons, the insurance company could provide varied premium rates to the insured depending upon the usage of the car—daily usage or only on weekends; or basis driving behaviour such as over-speeding".

This, he said, would be possible through the use of tech-based devices that would enable the company to understand these variables better.

Terming the move "historic", Datta said it would “allow insurers to get into smaller parts of the market and give a boost to utility-based insurance purchases and will encourage safe driving habits".

Besides, the floater policy would help the company issue a single cover for multiple vehicles owned by the same policyholder, and “align policy renewal dates, which was previously not permitted”, Datta said.

According to Ramalingam, this initiative will make motor insurance more affordable.