Drive less, pay less premium

Rajalakshmi Nirmal, BL Research Bureau | Updated on February 17, 2020 Published on February 17, 2020

New motor policies under the regulatory sandbox guidelines let you pay only for the distance you drive; should you go for it?

Till a month ago, Kapoor used to drive 20 km up and down a day, from his house in Hauz Khas to his workplace in Rajpath, New Delhi. He has now moved jobs, and his new office is just a 10-minute walk from his home.

Kapoor expects to save a lot of money now; he will fuel only when he goes out with his family, possibly over the weekends. True, less use of the car, less spend on fuel. But the premium on the car insurance is still going to burn a hole in the pocket, isn’t it?

Not necessarily, if Kapoor buys any of the recently launched motor products under the ‘regulatory sandbox’ guidelines that offer usage-based cover. Last August, the Insurance Regulatory and Development Authority of India (IRDAI) came up with guidelines on the regulatory sandbox, and invited applications from companies to pilot innovative tech-based products.

The regulator received several proposals from insurers in the health and motor space. Among these is Liberty General Insurance’s ‘Pay for the Distance’ feature under its private car package policy that charges customers a premium only for the distance they drive. Another is ICICI Lombard’s floater cover for motor vehicles, where an app-based interface will link the multiple vehicles of the owner together and offer coverage. Yet another is Edelweiss General’s usage-based floater policy.

So, should you go for these policies? While Liberty General’s new product is already available online, the rest have launched pilots, but these are not open online.

What is a regulatory sandbox?

A regulatory sandbox is a framework that allows the live-testing of new innovative products/services under a controlled environment. This is to foster innovation and give better products at a lower cost to customers and help innovators save cost on a full-scale larger rollout. Last year, besides IRDAI, SEBI and RBI had also launched regulatory sandbox framework for fintech companies. Companies that introduce products on a pilot basis under the regulatory sandbox have to comply with the rules of the respective regulator.

IRDAI has made it mandatory for all insurers who launch products under the new guidelines to maintain confidentiality of policyholder data, and build internal mechanisms to review and monitor controls and systems. The regulator also requires insurers to submit a report, at the end of the pilot, on how the product met the objective of increasing insurance penetration. On examining the report, IRDAI, if it is satisfied, will give permission to the insurer to launch the product on a full scale. If the regulator is not satisfied, the insurer will have to withdraw the product.

Liberty General’s new product

Liberty General Insurance’s new product enables car owners who use their vehicles occasionally to pay premium based on the distance they drive. This feature comes with the own damage (OD) cover of the motor policy. The customer has to opt for a minimum of 3,000 km; 5,000/7,000/8,000 km slabs are also available.

At the time of proposal, the odometer reading of the car is noted. The policy coverage will cease at the end of one year or when the chosen km is exhausted, whichever is earlier. Top-ups can be done in multiples of 1,000 km. However, if one drives the car for less than the chosen distance, the ‘balance’ premium will not be refunded.

The other features of the product are — higher than usual permissible voluntary deductible (up to ₹25,000 that gives up to 50 per cent discount in premium), in-built roadside assistance cover and ‘no-fault’ protection. Under ‘no-fault’ protection, the no-claim bonus in the policy is untouched on claims due to ‘act of God’ and damage in windshield glass of the parked vehicle by an external object. This means despite your claim, you will continue to receive no-claim bonus at the time of renewal of the policy.

Our take

Motor insurance has two parts. The first is the third party cover that’s mandatory under law, which covers damage to a third person or his vehicle in an accident. The second is OD cover that is optional and covers damage to the insured vehicle. It is on the OD cover that insurers have come up with policies under the regulatory sandbox guidelines, where the cost of insurance is based on a pay-per-mile principle.

If you tend not to take out your car frequently, it is suggested that you try Liberty General’s ‘Pay for the Distance’ motor product for OD cover — it will help you save premium. For instance, if you own a Hyundai i20 of ₹5 lakh insured declared value (IDV), by opting for a 3,000 km (for one year) cover, the premium you will pay for the OD plus third party cover will be ₹7,000 (this includes free roadside assistance cover). Had you taken a normal cover with Liberty General or any other motor insurer, you would have shelled out ₹9,000-10,000.

Liberty General has a network of 4,500 garages across the country and promises a hassle-free cashless service. The in-built roadside assistance cover is an advantage, as many motor insurers charge extra premium for it.

If at the end of the pilot period the product is not continued, you can switch to the regular motor policy of Liberty General.

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Published on February 17, 2020
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