India markets open in 3 hours

Motor Insurance: Your tariff challans may soon impact the insurance premium you pay

Saikat Neogi
The terms of reference of the working group will also be to develop data fields required to implement traffic violations as rating factor in motor insurance

With the government focusing on Intelligent Traffic Management System in metros, motor insurance premium may soon be linked to traffic violations committed by the registered owner or driver of the vehicle. The insurance regulator has set up a nine-member working group to recommend implementation framework and methodology to link insurance premium with traffic violations.

In 2017, the the insurance regulator had come out with a discussion paper on use of telematics in the motor insurance segment which can provide an opportunity for insurers to offer relevant risk mitigation solutions to customers.

Premium and traffic violation

Under the Automated Traffic Enforcement system, e-Challan are being issued to owners or drivers involved in traffic offences. "It is perceived that linking insurance premium to traffic violations committed could reduce road accidents and change driver behavior," the Insurance Regulatory and Development Authority of India's (Irdai) note says.

The panel will recommend methodology to link insurance premium with traffic violations after taking into account global practices. It will evaluate the current point system for traffic violations implemented by states and evolve standard point system considering each traffic violations.

The terms of reference of the working group will also be to develop data fields required to implement traffic violations as rating factor in motor insurance. It will also suggest system to access historical traffic violation data of each vehicle and transfer the data from enforcement authorities to Insurance Information Bureau of India (IIBI) database. The panel will also suggest modalities for carrying out an immediate pilot project at NCT, Delhi to implement the premium escalation formula.

Present system

Motor insurance premiums in India are based on parameters such as make and model of the vehicle, its capacity, and geographical use. Motor insurance comprises own-damage and third-party insurance. Any vehicle that plies on the road needs a third-party cover under the Motor Vehicles Act and the rates for this are fixed by Irdai.

If the policyholder does not make any claim during the period, the insurer gives No Claim Bonus (NCB), which is a discount on the motor insurance premium at the time of renewal. It is given only on own damage premium and not on the third party premium in a comprehensive motor insurance policy. As own damage premium constitutes bulk of the total premium, NCB every year can save a lot of money for a policyholder.

Insurers also offer NCB protector add-on at the time of renewal of the insurance policy. This add-on can be purchased only if the vehicle is not older than three years. The policyholder should avoid filing insurance claims for petty dents or scratches because even one claim will debar you from being eligible to claim NCB.

Telematics to determine risk profile

In telematics, motor insurance will be based on data on driving habits of customers like driving speed, distance travelled and usage of the car captured through a GPS-enabled device fitted inside the car. The device will record speed patterns, types of roads, whether driven by driver or owner, driven during day or night or during weekend and even how the brakes are applied. The data will be collected through a smartphone and on-board diagnostic port.

Insurers can then use the data to calculate the cost of insurance and adjust premium. The insurer will charge a fee to instal the device and quote the annual premium which can increase or decrease depending upon the driving performance and other factors. The system can be used to retrieve stolen vehicles and to guide drivers about efficient routes, and help them save fuel and maintenance cost.

In fact, a couple of years ago Bajaj Allianz General Insurance had launched a telematics service called Drive Smart which gives feedback on the driving habits, aligns it with the motor premium and rewards good driving behaviour. After plugging in the device, the car owner will receive real-time alerts and feedback on his driving habits from the company's insurance mobile app.