Keeping in mind Millennials’ familiarity with technology, IRDAI has authorized technology-focused car insurance coverages. In a July 6 statement, IRDAI allowed insurers to offer usage-based auto insurance. Here, usage is measured in kilometers or days of driving – “pay as you drive” and by the quality of the journey – “pay how you drive”. The innovation helps the insured pay for insurance based on usage and be rewarded for better driving discipline. One of the first products to come out was Edelweiss General Insurance’s ‘Switch insurance’, launched as part of IRDAI’s Sandbox initiative. This application-based, usage-centric insurance model offers many unique firsts to the insured. If the use of the car is intermittent or if the vehicle is driven by a better driver, the future policyholder can moderate his insurance payments.
Here’s how Switch insurance works, its pros and cons.
All Switch car insurance policyholders will need to install a corresponding SWITCH app from the Play Store or Apple App Store on their mobile phone. The mobile phone with the app will be the main source for collecting driving-related diagnostics. This is different from other telemetry-based insurance products, which use an OBD (On Board Diagnostics) device installed in the car to collect relevant information.
The description of the app on the Store states that no data will be shared with third party organizations – a written statement on data privacy. According to the management, the maps and related data will be used, if necessary, only for the compensation of claims.
All latest mobile phones have a gyroscope installed which will be used by the app to generate a driver score. The app (which is assumed to be on the insured’s phone) detects movement above a certain speed. When detecting a movement, the own damage coverage is automatically activated for that day and depending on the quality of driving, a driver score will be generated. A better score should provide a lower premium to insure against the risk of personal damage. The score assesses acceleration, angular velocity, stability, and other physical motion parameters to quantify the direction, smoothness, and safety of the ride. Since the app is installed on the phone, messaging and calling on the drive will automatically impact the distracted driving score. The insured will be able to access the score to modify and improve their driving skills with the application.
Savings from Switch insurance can be realized in the damage portion of premiums. Third-party premiums (constituting almost half of a typical premium payment) cannot be manipulated, as they are regulated and standardized by IRDAI. Regular insurance premiums cover the price of own damage essentially by type of vehicle, without the possibility of basing it on the period used or the capabilities of the driver. On days when the motion detected by the app is not due to the insured’s vehicle, it will require a manual command by the insured to turn it off that day, within 24 hours. This implies that on days when public or other transport is used, by manually deactivating the insurance for that day, savings will accrue. Thus, if you do not use your vehicle on weekends or other public holidays as well, the insurance premium will not be charged to you.
The policyholder can also authorize other named drivers to use the insured vehicle while receiving insurance coverage based on the activities recorded in the app. The insured can add the phone numbers of other drivers to authorize them.
In the pilot phases, the management noted that the convenience of use increased only when the application worked automatically. In other words, if a user had to manually engage the app every time they drove, they were more likely to miss out. To avoid this, a manual intervention was introduced to switch off rather than switch on again.
Personal damage coverage for the first and last month is billed up front. Later, own damage coverage is paid out as a subscription model, with each month’s performance reflected in the next month’s premium payment. Other charges, including third party premium and any other surcharges, will be collected in advance, as with regular car insurance payments.
How it works
Innovation helps insured pay for insurance based on usage and be rewarded for better driving discipline
Our point of view
All in all, Switch insurance can be best leveraged by a tech-savvy driver/insured who is fully aware of the cost-benefits that can be achieved by such a new-age technology insurance product. Management mentions that testing has resulted in savings of up to 30% on own damage coverage, most of which can be tied to days off alone, without bringing ride quality into the picture. Not paying for your own damage cover during periods when the car is not in use makes sense for policyholders who do not use the vehicle regularly.
However, there are a few points to ponder. The Switch app is designed to be active all the time. Notifying the app to disengage for out-of-vehicle days can be a bit of a laborious task. Additionally, when multiple drivers use the same vehicle, it can be difficult to control ride quality and reap the benefits.
There may be gaps in coverage in the event of a lost phone, dead phone battery or change of number. Consideration should also be given to the quality of network coverage in their vehicle usage areas for such technology driven policies.
July 23, 2022