[Cartman]

Hello folks,

I've been reading up a lot on insurance for the past month and a half. My final year project covered insurance in graphic detail. I have stumbled upon something called Usage Based Insurance or Pay as you drive.

Now, this concept has been in place in the US of A and Europe for a few years now and is gaining popularity as the days pass. Especially in UK where insurance costs are massive, people are opting for usage based insurance. Another key point to notice is that insurance premiums are considerably higher for people in the age bracket of 18-25. Probably because the insurance companies think that the youth are nothing but a bunch of reckless drivers (cue TopGear episode)

Let me answer some basic questions which might have cropped up:

1. What is usage based insurance?

- Usage based insurance, as the name suggests calculates your insurance premium on the go.

Quoting le old Wikipedia:

..... the insurance premium is calculated dynamically, typically according to the amount driven. There are three types of usage-based insurance:

a. Coverage is based on the odometer reading of the vehicle.

b. Coverage is based on mileage aggregated from GPS data, or the number of minutes the vehicle is being used as recorded by a vehicle-independent module transmitting data via cellphone or RF technology.

c. Coverage is based on other data collected from the vehicle, including speed and time-of-day information, driving actions in addition to distance or time travelled.

2. How does the insurance provider get "data"?

- A plug and play device slots into your OBD-II port. GPS is used for determining the location and it is transmitted to the insurance providers via GSM.

3. How is this better or worse than my normal auto insurance?

- As of now, the premiums are calculated on the IDV of the vehicle. The only concession you'd get in your premium is the no claim bonus or a discount in the premium. Usage based insurance gets the upper hand here as you pay the insurance only when you actually drive your vehicle. No usage will translate into a relatively negligible premium.

- Might prove to be a boon to people who use their vehicles only on weekends. Or, have small cars for running small errands which otherwise remain unused half the time.

- You effectively have control over the insurance premium you'd be paying. The only option we have right now is to select the lowest quote.

4. What if this proves to be more expensive than good ol' insurance?

- Drive Safe(r).


The App Angle:

The smartphone is probably smarter than the people using it. Insurance providers have exploited the fact that the smartphone is with a person practically every time. Not only this, it is connected to the internet too. Modern smartphones have inbuilt GPS and are linked to Google Maps by default.

There are apps available on the PlayStore and the iOS equivalent which basically monitor and grade your driving. Some insurance companies have even claimed a 50% saving in insurance premiums!

Example: Aviva Drive, AllState DriveWise etc.


Now that I've got everyone up to speed with the whys and whats of UBI; let me come to the reason for which I started the thread in the first place.

• Is Usage Based Insurance the way forward in India?
  
• Do you think it is feasible (implementation wise); in India.
  
• We're sort of famous for our driving mannerisms, is it possible that this can, in essence, teach us to drive safely?
  
• Million dollar question, personally, would you opt for usage based insurance?

Inviting responses from fellow BHPians. Would really like to know what the petrolhead community thinks about Usage Based Insurance.

[Rehaan]

Thread moved out from the Assembly Line. Thanks for sharing!

[dr.fixated]

Originally Posted by Cartman

• Is Usage Based Insurance the way forward in India?

Certainly but it will take time. Competition is very high in the motor insurance (this segment is also saturating in terms of growth) and more tech-savvy insurers might take lead.

Let us not forget that we are still struggling with so many vehicles on road without insurance, especially the Third Party Liability cover which is mandatory. This is much more prevalent with two-wheelers than cars. Also, fraud is very prevalent in TP segment.

Originally Posted by Cartman

• Do you think it is feasible (implementation wise); in India.

Tracking the usage is cumbersome. But at the time of renewal of the policy, the insurer could very easily ask for odometer reading and give some of the premium back if the usage was low.

Implementing telematics, which involves captured data of speed and vehicle actions on a real time basis, is not going to happen anytime soon for it is very technology intensive and difficult to use all of that information in pricing. Benefits in terms of better risk assessment might not outweigh the costs involved (devise cost, IT costs), at least in the short term. Plus, data confidentiality is another matter.

Some, if not all, insurers have been using fuel type (petrol / diesel etc) as a rating factor for quite some time. It is used as a proxy for extent of usage and cannot be manipulated as well. However, this is only being done for the own damage cover. As for Third Party Liability cover, the premium is still based on Cubic Capacity. Once the rates are freed from tariff, premiums for TP cover will slightly reduce for Petrol and slightly increase for Diesel, though TP premiums are still somewhat inadequate even for Private Cars.

Driving style is the most important risk factor and there are no simple proxies available.

Originally Posted by Cartman

• We're sort of famous for our driving mannerisms, is it possible that this can, in essence, teach us to drive safely?

Using telematics, the insurers assess the driving style of the driver as well in terms of speed (at corners, road type, traffic conditions etc.), braking usage etc. If premium structure provides an incentive, sane driving will be adopted by more people. But then, this will take a long time. Again, sane driving offers better fuel efficiency and this incentive already exists. This is really the need of the hour with the atrociously high number of road traffic deaths in our country.

No Claim Bonus does provide some incentive for careful driving and reduce moral hazard. However, the insurers are somewhat constrained in the verification of the claims history.

Originally Posted by Cartman

• Million dollar question, personally, would you opt for usage based insurance?

I certainly would opt for usage based insurance given my limited usage and also because of my very sane driving style (I am an inexperienced driver, you see).

[SDP]

Originally Posted by Cartman

...I have stumbled upon something called Usage Based Insurance or Pay as you drive.
...

Somehow I have never heard of this. So thank you for sharing the knowledge and creating awareness.

Now when I have read your post, the concept of Usage-Based-Insurance seems so obvious and in the "why-didn't-someone-think-of-this-before" category.

"Usage based" type-a and b seem to be based on "how many kms" and "how much time" the car is driven. The type-c mentioned in your wikipedia quote is what I found most interesting as it brings the "how the vehicle was driven" angle into it. This is a very exciting proposition and the possibilities are endless. e.g.
1. Higher premium for speeding or driving significantly below posted speed-limit. (and vice versa)
2. Higher premium for morons who cut lanes, drive in the wrong direction, tailgate, hog the overtaking lane etc etc.

Besides "how the vehicle is driven", a certain element of "how the vehicle is maintained" can also be factored in. e.g. when you see a car with lot of scrapes and scratches, its pretty obvious that "most likely" the driver has a wrong judgement about space or is rash enough to not respect somebody else's right of way. If a car is not serviced, the possibility of it braking down and causing an accident is higher and possibly that can be factored in when the premium is decided. Bald tyres, non-functioning tail-lights, fused headlight bulbs which are not replaced etc etc.

• Is Usage Based Insurance the way forward in India?
  
• Do you think it is feasible (implementation wise); in India.
  
• We're sort of famous for our driving mannerisms, is it possible that this can, in essence, teach us to drive safely?
  
• Million dollar question, personally, would you opt for usage based insurance?

....

Sorry, have completely ran out of time. Would answer the questions later in the day.

[Jeroen]

Originally Posted by Cartman

Now, this concept has been in place in the US of A and Europe for a few years now and is gaining popularity as the days pass..

I'm not so sure how popular it is in the USA and or Europe, at least not policies with eloborate tracking mechanism.

Most of my Dutch insurance policies are based on a certain maximum mileage per year. That is very well controlled, especially in a country as the Netherlands, where mileage are entered in central databases everytime a car undergoes maintenance and or goes through it's MOT.

If you find yourself in an accident and the mileometer shows an excess of miles compared to what you agree in your policy, you can find yourself (partly) liable for all damages etc.

Also, their are different kind of insurance offered for different useage patterns. For instance classic car insurance will (nearly) always come with a restricted mileage, but often require a second car for your daily use as well. (They don't want you to drive your classic on the daily commute. Restrictions like that keep premiums down considerably.

Jeroen

[Cartman]

Originally Posted by dr.fixated

Benefits in terms of better risk assessment might not outweigh the costs involved (devise cost, IT costs), at least in the short term. Plus, data confidentiality is another matter.

I think the insurance providers will be buying these telematic devices and not the end user. The cost that the end user will have to pay will be comparatively less.

Originally Posted by SDP

The type-c mentioned in your wikipedia quote is what I found most interesting as it brings the "how the vehicle was driven" angle into it.

This is a very exciting proposition and the possibilities are endless. e.g.
1. Higher premium for speeding or driving significantly below posted speed-limit. (and vice versa)
2. Higher premium for morons who cut lanes, drive in the wrong direction, tailgate, hog the overtaking lane etc etc.

Besides "how the vehicle is driven", a certain element of "how the vehicle is maintained" can also be factored in.

TypeC is what is needed. The technology might already exist for all we know. The implementation and acceptance remains to be seen. Cars are becoming smarter, sadly their drivers aren't. Whoever called India a "Chaos Theory on Wheels" wasn't lying.


Cheers!
Cartman.

[Akshay1234]

In a country which is so cost conscious, I think something which may be able to bring down insurance costs will be welcome. As long as the telematics devices are provided by the insurance company.

Though I'm not sure how many peoples premiums will actually come down, considering how cars are driven here

[scopriobharath]

I dont think this will work in india. There is too much logistics to be invested and that too the premium to be collected is lesser. Reward vs Effort seems to be negligible. The RTO database (read only) is not openly accessible to anyone, even companies. Data is shared only on an need-to-know basis that too accompanied by a letter from the police/similar departments.

Secondly, the major challenge is to prevent mileage tampering / GPS tracker disabling to achieve this. In Netherlands, it is possible as they are technically advanced that India and also the percentage of people who involve in malpractices would be negligible.

From an insurance provider perspective, they would be better off charging as per the current model, rather than the usage based model.

They only way to instill better traffic discipline is to increase fines 10 fold, with a minimum starting fine of Rs 5000/-. The traffic violation details should be shared with insurance companies, so that they can charge a premium on the insurance amount to them. Since violaters are many, this should set the cash boxes ringing with money for them.

[SDP]

Originally Posted by scopriobharath

I dont think this will work in india. There is too much logistics to be invested and that too the premium to be collected is lesser. Reward vs Effort seems to be negligible....
...
From an insurance provider perspective, they would be better off charging as per the current model, rather than the usage based model.
...

Look at it this way: today when one buys motor insurance, its a game of who is giving me more discount. Besides some innovative add-ons (which actually increase your premium), insurance companies don't really have a differentiator. The ability to offer a lower premium based on a more accurate method to assess risk could be a huge plus for insurance companies.

...They only way to instill better traffic discipline is to increase fines 10 fold, with a minimum starting fine of Rs 5000/-. The traffic violation details should be shared with insurance companies, so that they can charge a premium on the insurance amount to them. Since violaters are many, this should set the cash boxes ringing with money for them.

I think this point is not understood fully. There is a difference between violations and 'mannerisms'. Yes, violations should be considered during insurance premiums, but that's like penalizing the guy twice (RTO fine being the first).
On the other hand, take a safe driving habit like accelerating smoothly. If one does not do that and starts from stand-stilll as if he/she is trying to beat the quarter mile record, then the traffic police will most likely be not able to do anything. I know 'reckless driving' definition is pretty open-ended, but still, hear me out as this is an example. In such cases, although there might not be a violation, the risk is higher and the premium can be based on that. So if you drive nice and easy, you pay lower premium and if you are pushing it to the limit (even if without braking rules), you pay more premium.

[scopriobharath]

Originally Posted by SDP

Look at it this way: today when one buys motor insurance, its a game of who is giving me more discount. Besides some innovative add-ons (which actually increase your premium), insurance companies don't really have a differentiator. The ability to offer a lower premium based on a more accurate method to assess risk could be a huge plus for insurance companies.


I think this point is not understood fully. There is a difference between violations and 'mannerisms'. Yes, violations should be considered during insurance premiums, but that's like penalizing the guy twice (RTO fine being the first).
On the other hand, take a safe driving habit like accelerating smoothly. If one does not do that and starts from stand-stilll as if he/she is trying to beat the quarter mile record, then the traffic police will most likely be not able to do anything. I know 'reckless driving' definition is pretty open-ended, but still, hear me out as this is an example. In such cases, although there might not be a violation, the risk is higher and the premium can be based on that. So if you drive nice and sane, you pay lower premium and if you are pushing it to the limit (even if without braking rules), you pay more premium.

Most companies / business houses now-a-days are not seeming to want lesser revenue. They offer more features per product and ensure they get the same "turnover". Today for say they are charging 5000/- as premium, owing to competition, they might offer some extra benefit but keep the premium same. Example say coke 1 lt is 50/- . I have always seen offers like 20% extra for Rs 50/- .but I have never seen 1 litre coke for 40/- . Even for Samsung Tablets, some are offering free mobile + tablet stand+keyboard but no one is ready to offer a straight forward 5000/- cash discount at the counter. In India, in reality, no business house wants to reduce price. Be it insurance / hotel / electronics / eatables.

Insurance companies can lobby the government and then oligopoly the rates where the premiums are almost close to each-other. This would add a burden to the common man, but will instill better traffic sense and discipline.

Traffic Fines are a one time on-spot payment. But to prevent people from repeat offences and arguing when they are wrong is when higher premiums are needed. So ideally, if a person needs to reduce premium, he should change his drving style to a more traffic law oriented approach. Higher insurance will instill a long term fear for higher premium and will bring in more traffic discipline.

To Me, A person jumping 5 traffic lights in 10 mins is more accident causing prone rather than a person who adheres to all traffic rules for one-hour of driving. Usage based will work provided it is coupled with the above factors.

[Cartman]

Originally Posted by akshay1234

Though I'm not sure how many peoples premiums will actually come down, considering how cars are driven here.

I can already think of a few whose insurance premiums will shoot through the roof.

Originally Posted by scopriobharath

I dont think this will work in india. There is too much logistics to be invested and that too the premium to be collected is lesser. Reward vs Effort seems to be negligible.

Too much logistics involved? Care to elaborate on that, please? As far as I know, it will need a device, a sim card with gprs, a server and analytics.

Originally Posted by scopriobharath

Secondly, the major challenge is to prevent mileage tampering / GPS tracker disabling to achieve this.

Mileage tampering is sorta irrelevant since the miles clocked will be stored on the telematic device and not depend on the odometer of the car. It may be used to cross check or verify, though.

Btw, these devices can sustain quite some abuse. They can be programmed to send alerts on tampering too.

Originally Posted by SDP

The ability to offer a lower premium based on a more accurate method to assess risk could be a huge plus for insurance companies.

Precisely why i think it should work.

Originally Posted by SDP

So if you drive nice and easy, you pay lower premium and if you are pushing it to the limit (even if without braking rules), you pay more premium.

...hence the question, Will it teach us to drive safely? Atleast out of fear.

PS: Having gone through some ads, I've noticed they mention something called input intensity . This includes harsh accelerations and braking. Not very sure if harsh steering inputs can be implemented / monitored or no.

Originally Posted by scopriobharath

Most companies / business houses now-a-days are not seeming to want lesser revenue...

Very valid point. Never thought of it this way. But then, since the insurance company will make money by selling the device, don't you think it'll offset the potential loss due to lower premiums?


Cheers,
Cartman

[SDP]

Now that I've got everyone up to speed with the whys and whats of UBI; let me come to the reason for which I started the thread in the first place.

• Is Usage Based Insurance the way forward in India?
• Do you think it is feasible (implementation wise); in India.
• We're sort of famous for our driving mannerisms, is it possible that this can, in essence, teach us to drive safely?
• Million dollar question, personally, would you opt for usage based insurance?

Skipping the first 2 questions.
3. I doubt a once-a-year pinch of a increased premium is going to be enough for the thick-skinned repeat-offenders that we see everywhere on our roads. How about a meter which keeps on calculating and displaying your next premium in real-time? That would provide a constant feedback about driving style and would help. e.g. you do a lane-change without giving signal and the display in your car (or the app on your mobile) shows that your next premium has gone up by 10 Rs.

4. I would definitely opt for a UBI.
I do believe I get a raw deal currently and my driving record is not fully taken into account while calculating the premium. Forget about intelligence derived from complex technical systems, simple data points easily available are also not taken into consideration. e.g. although I have had no accident-claim in last 9 years, since I still own the Alto, my no-claim bonus on the 2nd car is just 25% this year. Another example: my car has a ABS+ESP, which would reduce the possibility of accident. So do I get lower premium compared to other variants of the same car which do not have ESP? I should, but currently I don't!

[scopriobharath]

Originally Posted by Cartman

Too much logistics involved? Care to elaborate on that, please? As far as I know, it will need a device, a sim card with gprs, a server and analytics.

Mileage tampering is sorta irrelevant since the miles clocked will be stored on the telematic device and not depend on the odometer of the car. It may be used to cross check or verify, though.
Btw, these devices can sustain quite some abuse. They can be programmed to send alerts on tampering too.

Yes - They need a device and a server. First the insurance companies should invest and try to research a proper vendor. This takes huge money. Secondly, Money would need to be spent to request the govt to implement this rule. After spending so much money, the insurance companies get a lesser premium in return. This does not sound good to companies.

Anything can be tampered in india. I am sure some shops will come up to tamper with the mileage/telematics. Secondly, a reliable telelmatics kit today, starts from 8000/-. How many people would be ready to invest in telematic kit, given the fact that the average joe breaks traffic rules everyday. There is no subsidy on food and other essentials, so expecting a subsidy on this kit is also out of the picture.

Again - UBI is possible in countries where everyone follows the traffic rule and law favours the person who is correct. In india , it will not work for sure as the average joe breaks traffic rules.

As i said in my previous post, a person on the road disregarding traffic rules on a 10 minute drive is more dangerous than a person following traffic rules for an hour of driving. The question is not about usage but how well one adapts to traffic rules.

Originally Posted by SDP

Look at it this way: today when one buys motor insurance, its a game of who is giving me more discount. Besides some innovative add-ons (which actually increase your premium), insurance companies don't really have a differentiator. The ability to offer a lower premium based on a more accurate method to assess risk could be a huge plus for insurance companies.

I think this point is not understood fully. There is a difference between violations and 'mannerisms'. Yes, violations should be considered during insurance premiums, but that's like penalizing the guy twice (RTO fine being the first).
On the other hand, take a safe driving habit like accelerating smoothly. If one does not do that and starts from stand-stilll as if he/she is trying to beat the quarter mile record, then the traffic police will most likely be not able to do anything. I know 'reckless driving' definition is pretty open-ended, but still, hear me out as this is an example. In such cases, although there might not be a violation, the risk is higher and the premium can be based on that. So if you drive nice and easy, you pay lower premium and if you are pushing it to the limit (even if without braking rules), you pay more premium.

The lower price factor can be oligoplyed and insurance companies can have a cartel that no one must reduce discount to offenders. Insurance companies are benefit by this rule and will accept it as they will make more money. It is similar to the fact that Coke and Pepsi raise prices on the same time and also offer similar discounts. This is all a result of monopoly in the market.

In developed countries, there is a fine and also the fine is connected with insurance premiums. In most most developed countries, everyone follows traffic rules. I dont see a point why a person should not be fined twice. It is accepted in foreign countries, why not in india. Fact acceleration is the last priority. Traffic violations like lane changing without indicators, jumping a red light etc should warrant a fine and also increased insurance rates.

Fines are for violating that traffic rule and insurance premium is higher because, the risk and cost involved in the case of an accident is higher when traffic rules are not followed.

[Dry Ice]

Pardon me if I missed this point, but what is there in it for the insurance company? I mean why should they offer this vis-a-vis regular insurance?

[tilt]

My 2 cents for whatever it's worth (and yes, I am a cynic):

1. Insurance is a business and insurance companies are in it to make a profit, not to be altruistic. There will never be a reduction in premium for the low-risk drivers. The only purpose UBI will serve is to give the insurance companies another excuse (this time backed by data) to raise the premiums through the roof for the other drivers.

2. I do not want one more entity tracking me and knowing where I go, when, how often, etc.

3. Any data that is collected like this by a corporation can be stolen by malcontents and misused. Please do not tell me about HTTPS and 4096-bit encryption etc., there have been too many incidents of data being stolen from even reputed corporations and entities.

4. Any data that is collected like this will surely be used to serve more ads and spam besides what I already get.

I am not in favour of UBI.

I grew up with the knowledge that Insurance is the biggest scam of them all where the only entity making any money or deriving any benefit is the insurance provider and nobody else. I have yet to see anything that will change that opinion. If I do, I certainly shall.

Cheers