The ‘Pay How You Drive’ plan is a motor insurance cover based on the driver’s driving history, i.e. how he/she drives. These plans are based on the driving behaviour— like speed, braking, acceleration, etc. which is monitored through either telematics devices installed in the car or via apps installed on your mobile device.
In Mumbai, a bustling metropolis known for its congested streets and chaotic traffic, the municipal authorities embarked on an ambitious project to enhance traffic management using cutting-edge technology. As part of this initiative, they introduced automated traffic enforcement systems at major intersections and thoroughfares across the city.
One such system focused on issuing electronic traffic citations, or e-challans, to motorists violating traffic laws. These e-challans were generated seamlessly through the use of surveillance cameras and sensors installed at strategic locations. The objective was clear: to instil discipline among drivers and reduce the rampant disregard for traffic regulations that often led to accidents and gridlock.
Initially, there was significant optimism surrounding the implementation of this system. It seemed like a promising step towards improving road safety and efficiency. However, as time passed, challenges began to emerge.
One of the proposed measures was to tie insurance premiums to traffic violations. The rationale was that imposing financial consequences for breaking traffic rules would incentivize compliance and discourage reckless behaviour on the roads. However, this proposition encountered resistance from various stakeholders.
What we mentioned above is a hypothetical situation. In fact, a couple of insurance companies have either launched products on these lines or are about to launch such products.
The Indian government is actively prioritizing implementing intelligent traffic management systems across metropolitan and smart cities. As part of this endeavour, automated traffic enforcement measures, including issuing e-challans for violations of the Motor Vehicle Act, have been introduced to hold the registered owners and drivers of vehicles involved in traffic violations accountable. There is a growing recognition that tying insurance premiums to traffic violations can reduce road accidents and influence driver conduct positively.
“A recent attempt to implement such a measure in Delhi faced obstacles and has not been realized thus far. This delay is attributed to the multifaceted nature of traffic violations, as not all violations necessarily correlate with a higher frequency of insurance claims. Consequently, discussions are ongoing regarding the feasibility and implications of linking traffic violations to insurance premiums, with implementation pending for further consideration and analysis,” says Subhasish Mazumder, head-motor distribution, Bajaj Allianz General Insurance.
Irdai formed the Working Group (WG) committee to examine and recommend linking motor insurance premiums with traffic violations on 6 Sep 2019. Based on the report prepared by WG, general insurers submitted their views on the draft on 1 Feb 2021. “This proposal talks about introducing the fifth section into the motor policy as “Traffic Violation Premium”(TVP) and its implications, design of the TVP system, data sharing, and mechanism. After that, no formal communication from Irdai is received to implement it,” says Neel Chheda, senior executive vice president & head - auto & actuarial analytics, TATA AIG General Insurance.
Premiums Linked To Driving Habits Is A Reality In The US
However, this is prevalent in countries like the United States (US). In developed countries like the US, similar initiatives have been implemented to varying degrees. Many insurance companies offer programs where driving behaviour is monitored through telematics devices or smartphone apps. “This data is then used to adjust premiums based on driving habits such as speed, braking, and adherence to traffic laws. While not directly linked to traffic violations, these programs promote safer driving and offer discounts for good behaviour,” says Shanai Ghosh, Managing Director (MD) & Chief Executive Officer (CEO), Zuno General Insurance.
This brings us to a type of insurance- pay how you drive insurance. While pay-as-you-drive insurance calculates your insurance premium on the distance driven and charges you a lower premium if you drive less, pay-how-you-drive insurance is insurance that is based on how you drive. However, pay-how-you-drive insurance is offered only by a few insurance companies in India as of now.
How Does ‘Pay How You Drive’ Insurance Work?
'Pay how you drive' insurance, calculates premiums based on actual driving behaviour. “For example, a policyholder's driving habits, such as maintaining safe speeds, smooth braking, and avoiding sudden accelerations, using mobile phones while driving, are monitored using telematics devices or smartphone apps. Better driving habits lead to lower premiums, incentivizing safer behaviour on the road,” says Ghosh.
Zuno General Insurance’s approach to introducing a programme that rewards individuals based on their driving behaviour, or linking it to the kilometres driven, is a significant departure from the traditional model of insurance sales, where policies are sold as bundles and the engagement largely revolves around the claims.
They have recently launched Zuno Driving Quotient, a driving score, accessible through the Zuno app which has been conceptualized to incentivize good driving behaviour and empower customers to pay lesser premiums based on how well they drive. The Zuno app will utilize mobile sensor-based telematics to evaluate driving behaviour and assign a unique driving score, steering in a new era of road safety. The users can take the 15-day driving challenge by downloading the Zuno app and gaining valuable insights into their driving skills.
ICICI Lombard has also launched a similar product named ‘Pay How You Use’ insurance. This plan leverages telematics technology, which gathers data on how you use your car. Unlike traditional plans with fixed premiums, "Pay How You Use" calculates your premium based on your individual driving behaviour. The safer you drive, the less you pay!
However, it's important to note that this plan is currently only available to existing customers who already have a telematics-based car insurance policy with them. You receive a weekly summary of your driving behaviour, along with tips to improve your driving score. The better you score, the more you save on your premium. You can opt for this on renewal and pay your premiums on a quarterly basis based on your driving score.
“How a driver is driving is monitored through either telematics devices installed in the car or via apps installed on your mobile device. This way, the insurance companies can assess the driver’s driving score and, accordingly, decide the premium to be charged,” says Nitin Kumar, business head, motor insurance, Policybazaar.com.
Individuals can access their driving records through usage-based car insurance programs that utilize telematics data. Telematics technology employs devices such as onboard diagnostics devices (OBD) or smartphone apps provided by insurers to monitor and transmit driving performance data. “This data includes information on driving habits, distances travelled, and adherence to safety protocols. By reviewing their driving records, policyholders can gain insights into their driving behaviour and potentially adjust their habits to qualify for lower insurance premiums,” says Animesh Das, CEO, ACKO.
If you have a pay-as-you-drive insurance policy, driving behaviour can have several implications for you. When insurers collect telematics data, they assess the driving behaviour of policyholders over a specific period. Instances of rash driving, such as aggressive acceleration, sudden braking, or excessive speeding, may result in penalties or surcharges imposed by the insurer.
“Additionally, policyholders who engage in reckless driving behaviour may face higher premiums upon policy renewal as insurers adjust rates based on the level of risk posed by the driver. Conversely, safe driving habits can lead to discounts or rewards, encouraging policyholders to maintain responsible behaviour behind the wheel,” says Das.
A pay-how-you-drive plan also incentivizes the driver to follow good driving hygiene with reward points or discounts as mentioned in the policy. Drivers who follow traffic rules and drive carefully can benefit from lower premiums compared to those who violate rules or exceed speed limits. This plan also helps maintain road safety by rewarding drivers who practice safe driving habits.
For example, between two customers who drive the same distance, say 1,500 kilometres per year, the customer who drives cautiously will pay a lesser premium than the customer who drives relatively rashly.
Think of this as a credit score. When you pay your credit card bills and equated monthly instalments (EMIs) on time, you are rewarded with lower interest rates. Also, there are health insurance plans where if you stay fit and do a certain number of steps every day, you get a discount on renewal premiums. Similarly, here you are rewarded for driving more responsibly.
However, we still do not live in an Orwellian world where every time we make a traffic violation, the insurance companies know about it and load our premiums. Even when such plans are introduced and become common, this is something one would sign up on their own accord, if they want to be rewarded for good driving.