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Do you also drive your car only a few days or less kilometers in a month and yet you have to pay a huge car insurance premium worth thousands of rupees every year? If yes, then the new ‘Pay As You Drive’ (PAYD) model of Insurance Regulatory and Development Authority of India (IRDAI) is going to prove to be a game-changer for you. Under this modern insurance concept, now you will have to pay the premium according to the fixed usage or kilometer of your vehicle throughout the year. That means if you drive less, the insurance cost will also be less. This system has come as a huge gift of financial relief for the drivers and car owners of the country, due to which the budget of middle class families has started becoming stable and a big change is being seen in the motor insurance sector.
What is IRDAI’s ‘Pay As You Drive’ model and how does it work?
Insurance sector regulator IRDAI has promoted this user-friendly technology-based concept by making revolutionary amendments in motor insurance rules. What used to happen in traditional motor insurance was that whether you kept your car parked in the garage for the whole year or drove only 2 kilometers a day, you had to pay a fixed premium. But under smart plans like ‘Pay As You Drive’ and ‘Pay How You Drive’, drivers are given discounts based on their driving habits and distance covered. In this type of plan, a telematics device or the company’s authorized app is attached to the car, which tracks through GPS how many kilometers your vehicle has traveled. Additionally, driving skills like speeding, sudden braking are also monitored, resulting in bonus discounts for those who drive safely.
Why this policy is a boon for low-usage car owners
From big metros to small towns in India, there are many car owners whose vehicles are taken out only on weekends or due to short distance to office, their annual mileage is very less. For such people, traditional comprehensive insurance proved to be a very expensive deal because they drove less but paid the same premium as others. With the introduction of this smart insurance plan of IRDAI, low running car owners are now able to make huge savings ranging from 20% to 40%. Insurance companies now offer different distance slabs, such as annual limits of up to 2,500 km, 5,000 km, 7,500 km or 10,000 km. If your car usage is limited, you can halve your insurance costs by choosing the lowest kilometer slab as per your requirement.
Why is this smart plan better and different from traditional motor insurance?
If we compare traditional motor insurance and this new smart plan backed by IRDAI, the main difference between the two is transparency and flexibility. In the old system, the insurance premium was decided only on the basis of engine capacity (CC) of the vehicle and its IDV i.e. market value, whether the vehicle runs on the road or not. In contrast, the Smart Plan prioritizes the driver’s actual usage. Many leading general insurance companies in the market have now made this option very convenient for their customers. Policyholders can also top up their kilometers from the app as per their convenience in case they suddenly have to go on a long journey. The entire process is completely digital, transparent and consumer friendly, thereby strengthening trust between both insurance companies and customers.
Its impact and future trend on the insurance industry
Insurance market experts believe that this step of IRDAI is proving to be a milestone for both the automobile and insurance sectors of India. As smart vehicles and connected car technology are increasing in the country, the demand for usage-based insurance is increasing rapidly. This not only puts a psychological control on the pollution and traffic pressure caused by unnecessary vehicles on the roads, but also motivates people to drive their vehicles safely. Safe driving customers get additional discount at the time of renewal based on low accident record. Overall, this ‘Smart Plan’ has become the best and most practical way for car owners to save their wallet and be a part of a modern technology, resulting in direct savings of thousands of rupees every year.