Give more information to insurer, pay less for vehicle insurance
By: Vijay Kumar, Head: Motor Insurance Bajaj Allianz General Insurance
Motor insurance post 2007 has moved beyond the four basic variables – engine capacity, geographical zone, age and price of the vehicle – to as many as 10 variables, and there will be many more in future.
Today, insurers consider various variables like a vehicle’s age, make and model, and usage and capacity; driver’s profile like age, gender, and occupation; and place of parking, area of use of the vehicle, etc, to arrive at the insurance premium.
A couple of years ago, several new variables like fuel, policyholder’s vintage with the company, marital status, claims history, kilometre running of the vehicle, etc, were added to the list. All these variables have a bearing on the insurance premium as it helps in estimating the likelihood of a claim being made and the likely size of the claim.
How do all these variables affect the ultimate customer? Simple, it will ultimately benefit different groups of policyholders besides making it easier for an insurer to fix the price. These factors have been proven to be very strong differentiators of risks and have been used for pricing by insurers in the more developed markets.
However, in India, the amount of such information available is very little and, as a result, all policyholders pay an average price for insuring their vehicle, which works like a cross-subsidy.
This means that even though a particular person may belong to a group of better drivers, he/she will still have to pay a higher premium, because the insurer does not use their (drivers) personal information in fixing the car’s premium.
Information such as the place of residence, marital status, credit history and number of drivers have a bearing on the premium and also brings in more equity amongst the disparate groups of policyholders who differ considerably in their driving habits.
Currently in India, pricing is not yet perfect and, for sure, is not customer-friendly, as the distinction is very little between a good driver and bad driver and it limits the scope of customer segmentation.
Till recently, insurers never collected such details from customers. They were only concerned about the mandatory four variables for computation of premium. At times, customers leave many questions in the proposal forms blank.
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