What Is 'Pay As You Drive' Scheme For Vehicle Insurance?

 The IRDAI (Insurance Regulatory and Development Authority of India) has officially released its mandate for unique Pay as you drive or Pay how you drive policies of insurance companies that will be based on car owners and their driving histories. Insurance companies can also come up with floater policies as add-ons for people possessing more than one two-wheeler or vehicle. This will not only lower the cost of insurance but also increase vehicle numbers in the market, as per several experts. Car owners may now get insurance coverage on the basis of the kilometres that they usually drive. Technology-driven policies may also be integrated as specific add-ons in addition to basic own damage coverage. These plans will ensure distance-based coverage to save upfront payment costs. The coverage for Pay as you drive will suit those who drive sparingly or have multiple vehicles, with many of them being different from each other. 


What is the main reason for this 'Pay as You Drive' scheme for vehicle insurance?

Many consumers use their cars sparingly and end up paying the same insurance instalments as regular vehicle users. This is a waste of money for the clients, and the company is attempting to alleviate these worries through this scheme. The "Pay as you drive" service offers the chance to pay a premium depending on actual vehicle usage. This enables customers to save between 10-20% of their 'Own Harm' premium based on the distance portions chosen by the customer. According to the safety net provider, the driving distance will be assessed with the use of a telematics device placed in the car. 


Customers who occasionally drive their automobiles could pay a lesser premium in line with the risk exposure. It is anticipated that this technologically advanced solution, which offers clients value and savings based on how often they use their cars, would establish a new standard in the auto insurance sector. 


The concept of Telematics used for the scheme

You are given a "telematics" gadget by your insurance company to monitor your driving habits. With the aid of this gadget, the speed at which the automobile is driven, the number of times the brakes are engaged, and the number of kilometres travelled would be recorded and communicated with the insurance company for more accurate premium computation. In order to reward drivers depending on their driving habits, the idea of telematics is proposed. Rash drivers are punished with premium loading, while good drivers receive discounted premiums.


Savings you can expect by using the Pay as You Drive scheme for vehicle insurance


Slab limit of KM driven

Expected discount on premium %

Own Damage premiums (Rs)

Discounts achieved (Rs)

Regular unlimited driving

NIL

10000

NIL

2500 KM

10%

9000

1000

5000 KM

15%

8500

1500

750 KM

25%

7500

2500


How the Vehicle insurance value is calculated.

Due to add-ons and other factors, the insurance costs for the automobile might be fairly expensive during the first five years of ownership. According to the Motor Vehicle Act of 1988, personal damage insurance may be purchased if necessary and is based on the insured's ability to pay. Third-party Vehicle insurance is required by law. Additionally, the comprehensive auto insurance policy includes a "Pay as you drive" car insurance option that lets you select your own damage coverage based on how often you use the vehicle. 


You must specify how many kilometres you want to drive your automobile, choose that amount, and pay a premium that is based on a pre-established formula by the insurance company.


Some probable key features of these plans include the following: 


  • Low premiums can be 2500 km, 5000 km, and 7500 km depending on the kilometre values declared by the user.

  • Customizable choices for coverage, encompassing road accident vehicle insurance.

  • Free telematics tracker that aids in maintaining your vehicle's IRDAI-supported auto insurance policy. 

  • This policy includes coverage for both own damages and third-party damages.


Hence, with these innovative plans, vehicle owners will benefit from lower premium costs while paying only for their usage-based needs. Those with multiple vehicles will also heave a sigh of relief. The move by the IRDAI to allow these policies for insurers is a masterstroke, as opined by several experts, which will only raise car or two-wheeler ownership figures in the country in the near future. 

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