After browsing through catalogues, visits to car showrooms, advice from friends, and a thorough check of your financials, you have finally zeroed in on the car you want to buy. You would naturally have taken into account the insurance premium you pay, which currently depends on the model of the car, the security and safety features installed in the vehicle, the driver's profile and whether the car is for commercial or private usage.
Vijay Kumar, head of motor insurance atBajaj Allianz General Insurance, says, "So far, the premium has been focused more on the vehicle and less on the user. However, this is bound to change soon, as the premium will depend on the parameters that lower the risk. So, more user-specific factors which influence risk will be considered." Here are some that may impact the premium of yourcar insurance in the coming years.
Distance travelled: The number of kilometres you log in each month will be an important determinant. How? The reasoning is that less travelling translates to lower risk, and vice versa. Says Sanjay Datta, head of customer service, ICICI Lombard General Insurance: "If a car is driven less than 5 km a day, say, to drop your kid to school and back, it will be perceived to have lower risk than a vehicle that is driven about 50 km each day, say, to and from your office."
However, Karan Chopra, head, retail business,HDFC ERGO General Insurance, says that to include this feature a device will have to be installed in the car to be able to track the odometer. So it might take some time to include mileage as a factor for deciding the premium because the insurance companies are yet to work out the economics of this.
Credit history and behavioural patterns: Internationally, insurance companies have linked credit history and customer behaviour to premium amount. A credit score means more authentic information about the individual's track record regarding payment and defaults. KG Krishnamoorthy Rao, managing director and CEO, Future Generali India Insurance, says, "Credit score may be used in the next 2-3 years as insurers are still to develop better fraud control mechanisms."
Behavioural patterns may be derived fromchoices made by the individual, such as the colour of the car. For instance, a person who owns a red car is considered to be more aggressive than someone who owns a white car, and, hence, the risk associated with the former is seen to be higher.
Choice of city: Kumar of Bajaj Allianz General Insurance, says, "When it comes to the premium being determined by geography, currently, the classification is not too granular." As of now, it is divided into two zones-A and B. Zone A includes Ahmedabad, Bangalore, Chennai, Hyderabad, Kolkata, Mumbai, New Delhi and Pune, whereas the rest of India falls into Zone B. The vehicles in Zone A are considered to be more vulnerable to theft and accidents and, therefore, their premiums are higher. Kumar adds, "Ideally, the classification should be on the basis of cities and there should be demarcations within the city too."
Home ownership: Owning a house may also help reduce your car insurance premium. "A home means security and also emphasises stability. This can be an important parameter in deciding the premium rates. If taken into account, it can translate into lower rates for the customer," says Neelesh Garg, executive director,ICICI Lombard General Insurance. Other factors, such as car maintenance and driver's gender, will also be important. So, if you have been getting your car serviced at an authorised service centre and have been maintaining it properly, you may be able to get a discount on the premium. Industry experts say that gender will also come into play soon. However, most of them are still not sure the extent to which it will affect the premium.
In order to consider all these factors, the biggest challenge that the insurers are facing is gathering information. Gaurav Garg, managing director and CEO of Tata AIG General Insurance, says, "Due to the lack of basic data and inadequate or inflexible ratingsystems, many insurance companies have failed to capitalise on it. These constraints make the use and implementation of such advanced factors difficult."
Top-up covers: While these factors are yet to come into effect for computing the premium, a multitude of add-on covers has been launched for auto insurance. Garg of Tata AIG says, "Add-on covers bridge the gap between actual financial losses arising due to an accident and the amount covered in the base policy." Such covers can increase the premium rates by 1-2% of the total sum insured. Cashless car insurance, depreciation cover, one for consumable parts of the vehicle, and coverage for engine damage in case of water losses are some such offerings.
Says Banwari Lal Sharma of CarWale, an online portal: "Don't get swayed by lower premiums. Instead of considering money as a determinant, go for covers that have additional features. If a company offers to fully cover or provide increased, partial cover on items such as glass, fibre or paints, you should opt for it." Also, a reduced premium is not always beneficial. At times, when brokers have provided a discount on premium, they have reduced the total insured declared value of the car. So be careful about the features you opt for.
FACTORS THAT CURRENTLY DETERMINE THE PREMIUM
Fuel: Petrol versions invite a higher premium than diesel, LPG & CNG variants.
Car model : Entry-level cars are used by young drivers, implying higher risk, and bigger premium.
Spare parts: Expensive or sparse parts mean a fatter premium.
Owner's profile: The profession, lifestyle and age also determine the premium you pay.
Safety devices: Locks, air-bags, anti-theft and life-saving devices mean a lower premium.