Your risk profile will determine vehicle premiums in future

As the auto insurance industry in India matures, you may find yourself paying premiums based on your risk profile. Currently, premiums are standardised, depending only on the vehicle to be insured rather than the driver.

Insurers are now collecting data which helps them assess the risk associated with a particular demographic profile. This could significantly reduce the premiums that one has to fork out as low- risk drivers would no longer subsidise high-risk ones.

The developed world follows this model of risk-based pricing. Insurers use certain parameters to ascertain whether someone represents a bigger risk in insurance terms. Factors like age, gender, profession and behaviour type are used to determine the risk profile of the car owner.

For example, a 24-year-old single male engineer could attract far higher premium than a 35-year-old married female MBA. Again, in a family of four, the premium for the 18-year-old son could be higher than that for the parents and the daughter put together.

As insurance gradually becomes a high involvement purchase category for consumers and the Indian insurance industry comes of age, insurers in India, too, have begun to take steps in this direction. They have begun to track risk categories, analysing data to substantiate what historical evidence appears to indicate – that factors like gender and age do have a bearing on frequency and size of claims.

Your profession, too, can win you some brownie points with your insurer. Doctors and teachers may be considered safer and may attract lower premium than sales or marketing executives who are engaged in field work and use their vehicles longer each day. Along the same concept, the expected monthly/annual usage of the vehicle is also often taken into account to determine insurance premiums.

Women drivers may have to pay lower premium as also people in the age bracket of 40-60, if claim and accident data backs up the general perception that they are indeed less aggressive and risky.

Under this model, the policyholder would have to provide the names of all expected people who would be driving the vehicle and the insurance premium would be based on their risk profile. Policyholders who have a trained and experienced chauffeur may end up shelling out less as such drivers are generally perceived to be safer.

Then again, insuring a younger family member, below 21, could be very expensive. In such a case, adding a second older driver with a good track record, even if they wouldn`t be using the car often, could reduce the average risk and consequently the premium.

Technologies to track and monitor vehicle usage as well as the driving behaviour of motorists can further revolutionise the auto insurance industry in future. These will give consumers added opportunity to reduce premiums through responsible driving behaviour. An emerging system is to gauge average vehicle usage through a global positioning system. This would mean lower premiums for those who limit their vehicle usage as opposed to those who use their cars frequently and for long distance travel.

In various countries, new technologies are also being developed to measure the extent of braking, swerving, sudden turns and other such aspects. As study of safe or reckless patterns of driving throws up concrete evidence, rash drivers would then have to shell out more. Your driving behaviour could also be judged by factors like getting caught with a mobile phone while driving, which could push up your premium.

Sometimes, the car you pick could further increase the risk potential when combined with your demographics. A powerful sports utility vehicle for a teenage driver who has recently got his licence would naturally attract higher charges.

How you maintain your car could also have an impact on your premium. If your car is fitted with a good alarm system and is parked in a garage rather than outdoors, this reduces the chance of theft and may earn you discount on the premium.

Globally, the auto insurance industry follows the customer profile-based pricing system. It is a matter of time before the Indian insurance industry aligns itself to this model. Private insurers are building data sets, based on findings of various sophisticated analytical reports, which would help them to introduce the risk assessment based system. Low risk or ‘safe’ drivers can look forward to getting rewarded with lower premium costs.

The writer is CEO of BerkshireInsurance.com