Benefits of opting for usage-based motor insurance

Gone are the days when traditional ‘one-size fits all’ products were a norm in the insurance space. Today, insurers are designing customised products that meet the individual requirements of their customers. In line with this streak of innovative products and services, it has come out with a unique feature called, ‘Pay as you consume’ (PAYC) for motor insurance.

While the PAYC model is already being widely used in many developed countries, it is a relatively new concept in India.

PAYC is an add-on cover that you can buy under the “own damage” section of your motor insurance policy. It gives customers the liberty to choose coverage based on their vehicle usage and calculates the premium as per the distance covered and the coverage opted by the insured. You have the option to select from different usage slabs, which vary from insurer to insurer.

So, what happens if you exceed this pre-declared usage limit? Well, in this scenario also, there is no reason to worry. You can simply top up your plan by moving to the higher kilometre slab. Since the distance that each customer covers via their vehicle differs, PAYC charges the premium based on the distance covered by the particular vehicle, unlike the traditional insurance premium.

While traditionally the premiums are calculated based on the make and model of the car, age of the vehicle, insured declared value, and location to name a few, the PAYC model calculates the premium based on the distance covered. Simply put, PAYC helps you tailor the coverage as per your individual needs.

In telematics we trust

The use of a telematics device is elementary in the PAYC model. A telematics device uses informatics, advanced analytics, and telecommunications to store, receive and send data.

The insurers install a telematics device in the vehicle; the device is typically plugged into the

car’s on-board diagnostics port. This device monitors the distance covered by the vehicle, and it also reflects the balance or the remaining distance. Such devices also track the driving

behaviour of the user through various driving metrics.

Apart from the data from this device, app-based telematics are also used. Advanced analytics can be used to capture the driving information including acceleration, speed, and breaks to name a few.

The vigilant and careful drivers will be awarded for their safe driving behaviour in the form of premium discounts. The better you drive, the more discounts you will attract. The use of telematics devices encourages safe driving as it helps you monitor your driving behaviour.

Is it for everyone?

‘Pay as you consume,’ is ideal for people who use their vehicles only once in a

while to cover a long distance. It is also suitable for people who have more than one vehicle and do not use them equally. This is a great fit for people who commute more often through public transport than their vehicle. It is also quite apt for people who carpool for their routine commute to work.

In short, PAYC offers great flexibility and customisation and helps lower your motor insurance premium.

(The author is the Chief Distribution Officer - Retail Sales at Bajaj Allianz General Insurance)