Nowadays, insurance companies are increasingly focusing on need-based selling proposition and devising flexible plans that not only meet the diverse needs of customers but also easily handle their portfolios.
One such plan, which is here to change the whole outlook on auto insurance, is Usage-Based Insurance (UBI). So far, cars have attracted a steady rate of insurance premiums that owners pay, even if only reluctantly. But with the launch of UBI, car owners can now get back a significant amount of the premium they paid, based on the kilometers they have driven.
What is a universal basic income?
Universal Basic Income (UBI) policies are an additional cover over regular car insurance. With UBI, customers can benefit again depending on the distance they drive. With work patterns changing after the pandemic, many companies have adopted mixed work patterns, where employees can choose a combination of working from the office and working from home. This has led to a significant reduction in the average weekly commute for a large number of regular passengers. Hence, the new flexible insurance policies, which reimburse when driving, could not be better timed. These plans also get along well with individuals who own and use multiple vehicles. The equation is simple – the less you use the car, the more benefits you get!
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While individual policies may vary when it comes to specifics, users can get up to 25% on their private damage auto insurance premium if one chooses the UBI option.
Aside from setting the premium based on distance, another variant of UBI, which rewards policyholders for good driving behavior, is captured through telematics devices that are installed in some car models.
Not just one size
Universal basic income policies are the opposite of one-size-fits-all policies. Customization is key here, and technology makes it possible. The mileage is calculated based on the odometer reading, which is the basis on which the benefit is passed to the customer at the end of the policy term. The benefit calculation at the end of the policy term ensures that there is no pressure on the customer to have a prior commitment to his driving distance. Regardless of the number of kilometers traveled, a person’s car will remain protected for the duration of the insurance.
Technology is the key
With technology integrated at every step, there has been a sea of change in the way insurance policies are now served. Apart from the digital issuance of policies and disbursement of claims, Digitization acts as the lead correspondent while serving UBI policies. Customers don’t need to go through a tedious usage reporting process to show how far they’ve come. Instead, insurance companies look at the odometer reading and the interest is calculated based on the same. And with the introduction of ‘Connected Cars’ equipped with telematics devices, UBI will be the preferred choice of car owners in the near future.
Besides the regular benefit of up to 25% on the premium against special damages, customers can also enjoy the loyalty bonus. Among insurers, HDFC ERGO offers a 5% loyalty bonus during policy renewal, provided there is no claim history.
Usage based insurance offers clear advantages to both insurers and customers which is exactly why it has been one of the most talked about and preferred options in the auto insurance space. With the rapid advancement of mobility technology, it is helping the auto insurance industry to expand through a win-win proposition to all stakeholders.
(By Bartanel Ghosh, Head of Retail, HDFC ERGO)
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