The Future of Usage-Based Insurance for Bikes and Scooters

What is Usage-Based Insurance (UBI)?

Usage-Based Insurance (UBI) is a type of bike insurance policy in which the premium depends on your vehicle's actual usage. Unlike conventional two-wheeler insurance policies that rely on historical data and demographics, UBI uses real-time data to assess risk.

For bikes and scooters, this generally falls into two categories:

1. Pay-As-You-Drive (PAYD): Premiums are based on the distance (kilometres) covered.
2. Pay-How-You-Drive (PHYD): Premiums are based on the rider's driving practices, including speed, braking patterns, and other factors.

Regulatory Context: IRDAI and Usage-Based Insurance in India

In India, the Insurance Regulatory and Development Authority of India (IRDAI) has allowed insurers to introduce usage-based concepts like PAYD and PHYD as add-ons to the Own Damage (OD) component of bike insurance policies.

This means:

• The mandatory third-party bike insurance premium remains fixed in accordance with IRDAI rules.
• Usage-based pricing applies only to the Own Damage (OD) bike insurance coverage.
• Insurers can reward low-usage and safe riders through discounts and flexible premium structures.

This regulatory push is one of the key reasons why UBI is slowly gaining momentum in the Indian two-wheeler market.

Key Drivers of UBI in the Two-Wheeler Market

1. The Rise of Connected Two-Wheelers

   Modern electric scooters and high-end motorcycles come pre-equipped with smart devices, such as GPS, accelerometers, and GSM chips. It allows insurance providers to check data on these vehicles without installing any external devices.

2. Big Data and Machine Learning

   It is now possible for insurance providers to check riding behaviour in detail. AI algorithms help them sort large chunks of data. For instance, frequent hard braking in high-traffic areas might signal a higher risk of a rear-end collision, while smooth acceleration suggests a disciplined rider.

3. Economic Pressure and Personalisation

   Riders are now asking for a change. A rider who only uses their scooter for quick grocery runs shouldn't pay the same premium as a long-distance tourer. UBI offers a way to address this by rewarding low-mileage, safe riders with lower premiums.

How UBI Pricing Works for Bike Insurance in India?

Pay-As-You-Drive (PAYD)

Under PAYD, you choose a kilometre slab at the start of the policy (for example, 3,000 km, 5,000 km, or 7,500 km per year). Your own-damage bike insurance premium is calculated accordingly.

• If you ride less, you pay less.
• If you exceed the declared limit, you may need to top up the plan or pay additional charges.

Pay-How-You-Drive (PHYD)

On the other hand, in PHYD, insurers evaluate factors such as braking patterns, speed consistency, acceleration behaviour, riding hours, and routes taken. In this case, safe riders may receive discounts during their own-damage bike insurance policy renewal based on their riding score.

How UBI Benefits the Modern Rider?

• Significant Cost Savings: UBI can significantly reduce annual premiums for riders with lower vehicle usage. You only pay for the risk you actually create on the road by opting for a kilometre-bound plan.
• Improved Road Safety: Since riders know they will be rewarded with a lower premium for riding safely, they avoid overspeeding and aggressive manoeuvres. It results in improved safety for all the commuters.
• Faster Claim Processing: Since the insurance company has access to telematics data, analysing an accident case becomes much simpler. The data can show the exact speed at the time of impact and the incident location, significantly reducing the time required for bike insurance claim investigation and settlement.
• Enhanced Vehicle Security: Most UBI systems include geo-fencing and anti-theft notifications. If your bike leaves a designated safe zone or is moved without turning the engine on, you get real-time notifications about the same. It increases the chances of vehicle recovery.

Who Should Consider UBI for Bikes and Scooters?

UBI is meant for the following individuals who ride two-wheelers:

• Riders who use their bike occasionally or for short distances
• Work-from-home professionals with low annual mileage
• Safety-conscious riders who are confident about disciplined riding habits
• People owning multiple vehicles with low individual usage
• Urban commuters with predictable, limited routes

How to Buy Usage-Based Bike Insurance in India?

To make your purchase successful, you can follow the tips below:

• Compare bike insurance online on Policybazaar.com and check for PAYD/PHYD options.
• Ask the provider directly if such add-ons or telematics programs are available for your bike model.
• Understand how your kilometres or riding behaviour will be tracked (GPS, odometer, or mobile app).
• Check what happens if you exceed the kilometre limit.
• Confirm how discounts will apply at bike insurance renewal based on usage.

Challenges in UBI Adoption

There are a few hurdles in the way of adopting UBI for bikes and scooters:

• Data Privacy: Several riders don't want the insurance companies to track their data all the time.
• Infrastructure Costs: While new EVs have pre-equipped smart devices, older petrol-powered bikes require external OBD-II devices or mobile app tracking, which can be inconsistent.
• Lack of Awareness: Many vehicle owners remain unaware of UBI offerings from multiple insurance providers.

Future of UBI in India

UBI can bring about several changes in the Indian bike insurance industry. The adoption of smartphones is on the rise, which can help riders seek more app-based services. However, regulators will first have to clearly define the rules and guidelines about how data is collected and stored. The first step towards making UBI prominent is to build the rider's trust in the insurance provider for data collection.

FAQs- UBI in India