Telematics in Motor Insurance - Indian perspective

Telematics in Motor Insurance has been around for some time now. Insurance companies around the world are more and more attracted to the concept of usage based insurance as it provides an opportunity for insurers to reduce claims cost, policy administration cost and price policies more effectively. This concept has been pretty popular in Europe and the United States where currently about 10% to 15% business is happening through this model however concrete results in terms of success of this model is yet to be seen . As for Asian countries there has not been a fast paced movement in this area. In India there were some companies which experimented but the concept has not picked up due to various issues. Some providers have come up with options of app based or USB based data collection options also however there is not much headway in this direction which can be mainly attributable to following 

Price Cuts

To get drivers into telematics monitoring programs, the initial lure is usually a lower premium charge. It is expected to provide a discount only for participation rather than on actual performance, as Insurers look to collect a critical data and determine how effectively it can be leveraged for predictive modeling purposes. India is a highly price sensitive marker where discounts are offered anyway without any pricing parameter as such and mainly driven by competition as well as intermediaries. With not much a renewal incentives, customers switch insurers every year and bind the Policy with provider accepting lowest premium rather than looking for services and credibility of the Insurer. Customers having portfolio managers may not even aware who is the insurer while policies are primarily sourced from those paying high Commission and incentives with service being secondary driver.

 This is pretty evident by the way Motor portfolio has been moving through the years.  Below given figures indicate Industry loss ratios for Auto Insurance in India

Source: IRDA handbook on Insurance statistics 2014-15

With incurred claim ratio beyond 80% with some players also at above 90%, combined ratios are well beyond 110%.  Improved loss ratios in last couple of years can largely be attributable to increased Third Party premium which is still tariff driven and dismantling of TP pool which has brought some amount of discipline in the way business is underwritten. While UBI does offer long term advantages of individual pricing arrived on the basis of data, adoption of sophisticated parameters and risk based pricing by all the insurers is a key challenge.

Value Added Services

 In the early stages of telematics, first-movers have an opportunity to increase their market share by offering discounted coverage. However, once there is saturation, it is unlikely that insurers can grow their business by selling telematics based on price discounts alone and that’s where the play of Value added services come in. The catch here is  that much of the same services are also offered by the Car manufacturers. For example Road side assistance, repair services, free servicing, periodic offers on car maintenance and many others. This makes customers completely ignore the value added services offered by Insurance companies.   Combining the whole telematics solution along with Value adds, at the best helps Insurers for;

·               Instant claim notification

·               Locating lost or stolen vehicle

·               Towing the vehicle to the network garage rather than manufacturers garage

·               Vehicle inspection

helping to reduce the loss ratios and improve the services considerably.  Value added services otherwise are lot of duplication and as such of little importance for customer acquisition presently. Value added services, most of the time are expected free of cost rather than on additional little payment which only adds to the business cost for insurers adding to combined ratios. 

 Data Sanctity

 The common rating factors generated by Telematics are;

·         Speed – Speed at which vehicle is driven compared to road speed

·         Mileage – Actual miles driven (for PAYD)

·         Garaging – Location of usual parking of vehicle

·         Lane Driving – How much lane changing is observed

·         Road Usage – Distribution of road types for vehicle driving (city, highway, rural etc.)

·         Cornering - Lateral force produced by a vehicle tire during turning

·         Time of Driving – Distribution for time of driving

·         Day of Week – Distribution for day of week driving

·         Hard Braking – G-Force applied at time of braking

·         Habits – how frequently driver accelerates, breaks and speeds

Factors like Mileage or Time of driving can be straight away used for simpler concepts like “Pay as you drive” however factors like Speed or Lane changing are far away from use in Indian context. Roads in India do not have assigned speeds. Speed is largely function of Traffic, road condition and time of driving. Data for Speed as a matter of behavior in this context cannot give a meaningful rating parameter as infrastructure is not set accordingly. Unless Insurer wants to decline a case for someone usually driving at beyond say 120 or 150 km/h, data or score arrived at from this parameter is a matter of customer debate. 

Lane driving is another factor which can’t really be used. While lane changing is breaking a traffic rule, Vehicles are often found changing the lanes as there are no roads with set speed limits and accordingly assigned lanes,  this results in each vehicle running at its own speed. While a small vehicle is driving at 50 to 60 km/h, an SUV will change the lane and overtake at about 100 km/h. In cities like Mumbai, Delhi or Bangalore if lanes are not changed, one can expect additional 100% of usual time to reach the destination (or rather not think of reaching in sane timing!) and in this whole process there are multiple accelerations and breaks which are as such essential. This makes the parameter almost of no use. Usage of these parameters to increase of reduce Insurance Premium is unlikely to bring driving discipline and would rather increase the premiums for higher proportion of customers currently enjoying discounted premium which will be overall rejection of  the concept of UBI.

While parameter can be set/modified suitably to cover above deviations, arriving at a driving score by using parameters like Lane driving, speed, and garage are a matter of big customer debate and dissatisfaction. Other factors like who is actually driving the car, deactivating the app or absence of tracking mechanism (like Mobile based app or USB plug in) also needs to be addressed. Data points like time of driving, terrain and mileage etc can be at the best be used for Pay how you drive or Pay as you drive concepts.

Product Structure

India is a heavily regulated market and Auto Insurance still follows the Tariff regime structure with Proposal forms, Policy wordings and other clauses standard across all Insurers in the Industry. Products are subject to “File & Use” guidelines where they can be sold only once examined by the regulator and approved.

Regulations do allow some play in terms of Pricing and add one covers like nil depreciation, cover of consumables, Road side assistance etc., the structure and main terms largely remain standard with complete premium payable in advance. While use of UBI is largely in pricing parameter, Premium changes quarterly or half yearly on the basis of telematics score or driving behavior and this is not allowed by Insurance law at present. Insurers are supposed to assess the risk in advance itself and charge the premium accordingly. Further matters like Coverage implication of breaking a rating parameter and meeting with accident (for ex assigned speed), data capturing/assessment with practical geography considerations are some of the key challenges that must be addressed with in the Product structure which is not allowed to be changed. 

In recent exposure draft of Health Regulations, rating basis preventive care and maintenance of lifestyle has been discussed by the regulator where telematics and fitness devices will come into play however Motor product continues remain tariff structured with filed premiums largely remaining Class rated rather than Individual rated.

 Data Privacy and regulatory aspects

There has not been much activity from the legislative or regulatory aspect on Telematics however Privacy is cited as potential issue. From Insurance regulations perspective, the Declarations and Proposal forms remain standardized by the regulator with no additional declarations allowed to part with phone number etc. for servicing purpose. Before such Products are allowed, Regulator would definitely like to have Protections in place for customers  

Things are looking up in terms of overall government emphasis and compulsion on vehicles being GPS enabled and more and more vehicle model coming up with built in tracking capacity with which Products like Pay as you Drive are looking up. However while technology is rapidly progressing towards driver less cars and Swallowable computing, actual implementation of these concepts and acceptance will continue to remain a big challenge for at least few more years 

Disclaimer: Information contained in this article is based on author’s views and understanding. These do not reflect the official views of any company author is associated with

Buying Health Insurance, confused ? check out the important aspects

Buying a Health Insurance has been a tough task for people all over the world .. even in developed countries like the USA where literacy and awareness levels are much higher, people are generally confused on what is the need, what is the availability and what to watch out for in an Insurance Policy. 

In India, though limited in scope, we have varied designs of the Health Products which requires assistance and explanation to end customers. 

Below given are some points to be considered and some rules to be definitely followed while buying Health Insurance 

Start Early - Don't wait for a Chronic illness to strike and then look for a cover .. no one wants defective peace from day one isn't it !? Rude but true! 


Type of Policy - there are generally following 2 types of covers

• Indemnity Policies - these policies have over all Sum Insured limits and pays for the amount spent on cost of treatment. In India, you find these with most of the General Insurance companies

        

• Benefit Policies - these policies have the fixed amount per illness and a over all Sum Insured. In case of hospitalization for a covered illness, fixed amount is paid irrespective of the treatment cost.

It is recommended to have a indemnity Policy in place first 

How much Coverage - with Medical costs soaring year on year, it is recommended to have Sum Insured between 10 lacs to 25 lacs at least depending upon your life style, location and choice of hospital in case of emergency. Today a normal hospitalization in good hospital ranges anywhere between 80,000 to 150,000 for Insurance patients and if illness is chronic or severe then costs run beyond 500,000 easily.  

For high limits, You can buy a base Policy and add super top up cover to that. it is cheaper to buy base cover + Super top up rather than buying one big Sum Insured Policy. 

Super top up policies do not cover certain base amount and trigger only when expenses cross a specified threshold limits. Make sure not to confuse Super top up cover with top up cover. 

Coverage

This is the most confusing task for a non insurance person to understand what is covered and not covered under the Policy. 

In India, most of the Policies follow the order in manner given below. Below given are the ones which should be carefully examined while making a purchase.

Hospitalization expenses - must be covered upto Sum Insured. If there are any diseases specific limits - it will charge you less premium comparatively however policies with sub limits should be avoided 

Room Rent/ICU limits - these are capped in some policies in return for a reduced premium however policies which such limits should be avoided. Policy ideally should be without any room rent/ICU cap. 

Maternity coverage - check for the waiting period. Claims are payable upto certain limits only and not upto the main Sum Insured. if the limits are below 50,000 it is of no use as most of the hospitals charge more than 50,000 for delivery. Also note that your new born will also be covered with in this limit only. Babies are generally added in the Policies after 90 days only.

Pre-existing diseases (PED) - trickiest of all ! - As mentioned above, Policy should be purchased when one is hail and hearty .. in that scenario, there is no need to worry about PED. In India Policies do not cover hospitalization triggered due to PED for 1 to 4 years depending on the Product. One should carefully watch no. of years for this exclusion while making a comparison.

Cumulative Bonus - This is a bonus Sum Insured which is added in the Policy if you have not made any claim. if the Claim is made, it is reduced by the same amount it accrued. it doesn't affect the basic Sum Insured 

There are lot of other coverage like Hospital cash, health check up etc which are simple in nature. 

One should definitely look out of Critical illness rider in optional coverage. This rider doubles the Sum Insured in case person is detected with one of the listed critical illness like Cancer, Kidney failure, multiple sclerosis. 

What is excluded 

List of around 30 to 40 exclusions can be found in a Health Insurance Policy. Key ones as given below. One should carefully go through the whole list.

• Pre existing diseases upto some number of years as per your chosen product. maximum being 4 years
• There will be waiting period of at least 2 years before you can claim for illness like Hernia, knee joint replacement, Varicose veins and some others.
• Circumcision, birth control procedure, Cosmetic treatments, OPD expenses (unless specifically covered) 
• HIV and related treatment 
• Weight loss or obesity related procedure, treatment of mental illness, etc

Know your rights

There are some Customer centric regulations which are applicable across all companies in India

• If you don't like, You can cancel your Policy with in 15 days of receipt and get the premium refund.
• Your Policy is renewable for life time 
• Insurance company can not charge additional loading at renewal 
• There is a grace period of 30 days for renewal and Your Policy can be renewed with continuity if premium is paid with in 30 days of due date 
• You get tax exemption under section 80D upto Premium amount paid 

Important Rules

While buying any type of Insurance, some rules you should always always always follow

• Fill up your own proposal form. Do not make anybody else fill it and regret it later. At the time of Claim, your intermediary might not be able to help 
• Answer all the questions truthfully. Do not make false declarations. In case of any PED, declare them right away or you may have to regret later 
• If the Product you have chosen requires you to go for Health check up, go and do so 
• Don't forget to add your newly married spouse or new born asap. 
• Renew/Pay your premium in time. In case of break, your PED count down starts afresh which you may not want 
• There are many sites giving comparisons of the Product which can be referred
• it is better to stick to one insurance company instead of transferring your policy every year to a new Insurance company. of course not in case if you had a very bad experience. 

Disclaimer - The information and views given above are my personal.