Talking Point. Car rule: odds and evens

The pilot rollout of the odd-even rule for private cars in Delhi to curb pollution levels in the city (ranked by WHO as the world’s most polluted city) evokes mixed reactions from vehicle owners.

While some felt that they would save time due to reduced congestion and traffic on roads, others were of the view that looking out for carpooling or public transport every alternate day would be a daunting task.

Now that the experimental phase has ended, everyone is intently keeping a watch on what the verdict will be.

There are roughly nine million vehicles registered in New Delhi, with 1,500 new ones being added every day. CNG vehicles were exempt from the odd-even rule (known as road space rationing in other parts of the world). Roughly 10 per cent of the vehicles in Delhi are registered as running on CNG.

The success of the odd-even rule is debatable and measuring its actual success will take a while. Besides New Delhi, other cities, such as Mumbai, are also considering adopting the rule. If the odd-even rule is implemented across cities, it could mean a shift for the insurance industry in more ways than one.

Are vehicles going to be exposed to less risk due to low usage? Will the current insurance premium be based on usage? Are people going to opt for alternative fuel (CNG) fittings? What will the impact of car pooling be on personal accident cover?

Since the pilot run was conducted in New Delhi, let’s take a point-wise look at the impact of the above situations on motor insurance premiums in New Delhi and the National Capital Region.

Vehicles will be exposed to lesser risk as their usage will come down. However, considering the frequency of insurance claims, there are no statistics to validate that only good drivers will be on the roads.

There would be a decrease in frequency; but the extent however, is unknown. On the other hand, there may be a situation of over-speeding due to lighter traffic, which may nullify any impact of reduction in accident frequency leading to claims.

Also, looking at the worldwide scenario that indicates a lower frequency of claims with women drivers, the exemption to single women drivers may bring down the accident frequency.

Insurers will have to track outcomes closely to adjust premiums accordingly. The current insurance premium is not based on usage of vehicles other than the broad usage, such as private usage and for taxi purpose.

In this situation, there is a strong case for allowing Usage Based Insurance premium (PAYD-Pay as you drive) as is prevalent in the western world.

With technology, it is easy to track the actual usage of vehicles today and thus classify risk in motor insurance. The CNG kit to be fit in cars will increase for sure, especially when the user has been exempted from the odd-even rule.

This will benefit the environment, given the supply of CNG and the abundant gas stations.

Insurance companies may have to evaluate the pricing of NCR-registered vehicles in a situation where usage of such vehicles increases. With this new rule, the demand for taxi services will rise. They will also be exposed to higher risk.

There will be a definite impact on the personal accident cover for passengers in an insured vehicle.

Though the owner/driver is covered by all insurance policies for personal accident, the demand for additional cover for passengers may rise due to carpooling.

In all, there is an opportunity for usage-based insurance to be tested in the market. If successful, it may prove to be an innovative product for the motor insurance market in India.

The writer is Head, Product Development, at SBI General Insurance

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