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The “Pay as you Drive” (PAYD) concept is already quite popular in the western world where premium rates are based not only on the model of the car, its age but also on the distance travelled and the driver’s experience. Today, due to Covid-19 when a large number of people prefer working from home, a motor insurance premium can pinch like an additional cost. With restricted mobility and people spending conservatively, a usage-based motor insurance policy can be one of the attractive ways to lower your premium.

“Pay as you go or pay as you drive option allows the insured to pay the premium as per the usage of their vehicle. With the reduction in the frequency of movement of vehicles and work from home trend in the future too, such products are useful for customers since they are paying an affordable premium only when their vehicle is in use. At Bajaj Allianz General Insurance, our product under Sandbox Regulations received a very good response and hence we have filed it as a regular product now,” said Gurdeep Singh Batra, Head – Retail Underwriting, Bajaj Allianz General Insurance.

The Insurance Regulatory and Development Authority of India (IRDAI) on January 14, 2020, made an announcement for approving proposals regarding PAYD or usage-based motor insurance from insurers under the Regulatory Sandbox.

What is the “Pay As You Drive” Concept?

“Pay As You Drive” is for people who do not travel frequently, especially those who work from home or have their house and office in close proximity. The feature can be used effectively to earn discounts as high as 30% as it also keeps track of the driving skills of the driver.

“The premium rate for usage-based car insurance depends on the distance travelled by the insured car.  However, the distance covered does not matter in the case of a comprehensive car insurance policy. The premium remains the same irrespective of the distance travelled,” said Neeraj Prakash, Managing Director, Shriram General Insurance.

How is the distance travelled measured?

Under usage-based insurance, you can customise the insurance policy based on the vehicle’s usage in terms of the estimated distance to be covered by the car. But how is the distance travelled measured by the insurance company?

For this, a telematics device that continuously monitors the distance travelled and driving habits of the insured is installed in the car by the insurer. Moreover, there’s a telematics app that is installed in the policyholder’s phone as well to synchronise the data. A telematics device not only captures the distance travelled by the insured car but also analyse the collected data such as braking technique and average speed.

Should you buy usage-based policies?

With insurers having accurate data of how you drive, safer and responsible drivers are charged lower premium under PAYD policies. Moreover, it suits people who do not drive much, given there is also an option to top up with the suitable km range if a policyholder is about to cross the declared distance travelled. One important point to note is you will be constantly tracked by your insurance company with GPS being active most of the time. Considering the concept is still new in the market, understand it properly before going for one.