Usage-Based Motor Insurance Receives Lukewarm Response in India

Recently, many general insurance companies have run Usage-Based Motor Insurance (UBI) pilot tests and their unanimous conclusion is that Indians are not yet ready for this innovation.

In a UBI, motor insurers align the premiums paid to the driving behavior of the vehicle owner. A global positioning system (GPS) is installed in insured vehicles and the policy owner is charged premiums based on the distance driven and routes taken. The GPS device (Telematics) costs Rs. 5,000-6,000; and this extra cost, tests concluded, was one of the reasons why Indians have rejected this option at present.

Though the idea was not well received in India, Vijay Kumar, CTO, Bajaj Allianz General Insurance, said that UBI has taken off and gained ground in many countries. The advantage, according to insurers, is that premiums in UBI are lesser than traditional motor insurance if the insured vehicle stays within cities. In traditional plans, on the other hand, policy holders pay the full premium no matter how less vehicle usage is.

Another disqualifying factor, industry experts say, is the inexpensive motor insurance premiums in India at present. With private and commercial vehicle owners paying just 1.5% and 0.8% of the value of the vehicle, respectively, as premium, UBI seems a more costly option.

These are the reasons, according to KG Krishnamoorthy Rao, MD and CEO, Future Generali Insurance, that makes this motor-insurance model not yet saleable in the Indian market. But the technical platform required for UBI was there, Rao further said.

Rupam Asthana, MD and CEO, Liberty Videocon General Insurance, was of similar opinion after conducting pilot tests in two cities. “The customer uptake has not been very positive because they do not a see value in the overall proposition as in the financial plan the motor premium is very small. The customer is also reluctant to allow any infringement of his privacy, as the data goes to the company. And without the customer’s consent, we can’t implement it,” Asthana was quoted as saying.

Madhukar Sinha, National Head - Personal Lines, Tata AIG, has suggested an alternative to push the uptake of UBI. He observed that the cost GPS devices can be reduced if insurers can install GPS in vehicle-owners’ smartphones instead of installing it in a separate port on the vehicle dashboard.

(Source: This article has been adapted from the article "Usage-based motor insurance faces hurdles" that appeared on December 16, 2014 in thehindubusinessline.com)