New motor insurance riders: Pay-as-you-drive, Pay-how-you-drive, Floater policies

The IRDAI has greenlighted three new motor own damage (OD) optional riders that one can choose based on their needs: pay-as-you-drive, pay-how-you-drive, and floater policies.

new motor insurance

The Insurance Regulatory and Development Authority of India (IRDAI) has finally announced new motor insurance add-on benefits that have been under development for the last two years under the 'Regulatory Sandbox Approach'. The objective is to leverage fintech to enhance innovation and foster growth of the insurance industry while also providing flexibility and protection to policyholders.

The IRDAI has greenlighted three new motor own damage (OD) optional riders that you can choose from as per your requirements.

Also Read: 6 Motor Insurance terms You Must Know Before You Claim

1. Pay-as-you-drive

The mileage-based optional motor insurance rider introduced by the IRDAI lets car owners pay insurance premiums based on the actual risk exposure the vehicle and passengers face while on the road. The premiums are calculated on the distance (kilometres) driven in a policy year, and insurance companies will record odometer readings to assess usage. This will result in lower premiums for vehicles that are driven less and higher premiums for high-mileage vehicles.

Ever since the pandemic, work-related commutes have come down drastically for many people, and this will continue for those who have the privilege of working remotely. So, this model will be especially beneficial for those who do not drive a lot or have multiple cars.

Vehicle owners will be able to opt for premium packages based on potential use (prepaid distance) during the policy year. In case the distance covered is exhausted, a top-up distance cover can be availed of at an additional cost. In case the original mileage has not been fully utilised, policyholders may be entitled to discounts on subsequent premiums, similar to a No Claim Bonus (NCB).

Also Read: 5 Things To Consider When Buying A Car Insurance For Women

2. Pay-how-you-drive

This model charges premiums based on the behavioural score of the driver/policyholder. Since a responsible and rule-adhering driver is presumed to be at a lower risk of being involved in an accident, the insurable risk is lower. And so, the insurance company offers coverage at cheaper premiums to such responsible drivers.

With technology percolating into all aspects of our life, it is now possible to tap into the driving habits of the user and customise the insurance plan accordingly. Service providers will collect and analyse data from GPS and telematics devices installed in the vehicle. All driving habits, such as driving discipline, adherence to speed limits and traffic lights, etc., will be evaluated by algorithmic underwriters to recommend the right premium for a driver.

In this model, the risk is placed on the driver rather than on the vehicle itself. It will therefore encourage more people to drive responsibly. 

3. Floater policies

Those who own multiple vehicles will no longer need to deal with the hassle of managing multiple insurance policies. A floater policy allows vehicle owners to cover all their vehicles, including two-wheelers, with a single policy. This saves on paperwork and premium cost. The damage cover will be active for whichever vehicle is on the road, and the pay-how-you-drive benefit too can be carried from one vehicle to another.

Also Read: Top Technology Trends Reshaping The Motor Insurance Sector 2022

Conclusion: To sum up, the integration of technology with motor insurance will allow insurance providers to offer highly customised products at appropriate price points to customers while making the roads safer for everyone.


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