A guide to usage-based insurance (UBI) & types

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11 Mar 2024

Understanding Usage-Based Insurance (UBI)

The advancement of technology has altered the nature and usage of car insurance to a considerable extent. As per the Motor Vehicles Act of 1988, every car owner must maintain valid car insurance. However, the popularity of flat-rate insurance is gradually diminishing, because of the enhanced practicality of usage-based insurance. This implies that your car insurance premium gets decided according to your car usage. You can try out Kotak General Insurance to comfortably complete the deal.

What is meant by usage-based insurance or UBI?

As the name suggests, UBI determines your insurance premium according to the amount of driving, unlike the conventional sort of insurance, which maintains a fixed premium amount. Your diving nature and the distance travelled are two significant determinants for deciding the car premium amount here. The insurer utilises specific data like acceleration rate, usual driving speed, braking pattern, phone usage while driving, etc. for calculating the insurance premium.

If your driving practices are good and you do not use your car regularly, you might significantly save on your premiums with UBI.

The working strategy of usage-based insurance?

Any usage insurance installs a special telematics device to monitor the car driving nature of the concerned vehicle. This device utilises informatics and telecommunication for monitoring, tracking, and sharing all the relevant driving data with the insurer. Such information includes speed, acceleration, braking, usage frequency, etc.

This information is utilised to understand the essential driving nature for determining the risk profile to calculate the premium value accordingly. Based on this, a safe driver needs to pay a comparatively lower premium compared to a rash driver.

The concerned car insurance company will collect your driving and usage data using any one of the following devices:

  1. Telematics device: The insurer provides this device to be installed in your vehicle. It records and tracks your driving usage and nature. It is best that you install this device professionally for optimum accuracy.

  2. On-board diagnostics data: You can self-install this device for tracking and recording real-time driving details.

  3. Plug-in device: This device can also be self-installed like a pen drive to record relevant information and tracking.

  4. GPS device: Advanced GPS devices are also used for tracking and monitoring real-time driving data.

  5. Mobile app: In this age of fast digitisation, a simple mobile app is enough to complete this procedure. The driver’s smartphone is enough without any need for any external device.

Types of usage insurance

There are 3 types of UBI:

  1. Pay as you drive: Here the premium is decided on the distance driven. There are separate slabs from which you can choose accordingly depending on your usage nature.

  2. Pay how you drive: Your driving patterns like speed, acceleration, braking, etc. are considered for premium determination.

  3. Pay as you go: This is a unique combination of both the above variants. You get charged according to time and distance for a pre-fixed span.

Benefits of usage insurance

Some of the most significant benefits of usage-based insurance are:

  1. Reward for safe driving practices

  2. Encourages better and safe driving habits

  3. Quick investigation of the accident

  4. Efficient vehicle recovery in case of theft

  5. Reduces fraud on claims

  6. Improves loyalty among customers

  7. Easy and effective claim management and settlement, etc.

Conclusion

UBI is ideal for occasionally-driven cars, maintaining efficient driving records, or you often drive on rental cars and short-time insurance is required; if you are a learner, UBI is useful and so it is for fleet management companies. UBI is gradually picking up in India, but still, it has a long way to go.

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Team Kotak GIC

The content of this blog has been created and carefully reviewed by the esteemed team at Kotak General Insurance, with the sole purpose of providing valuable guidance and sharing insights on the importance of general insurance. Our objective is to assist users in making informed decisions when purchasing or renewing insurance policies for their cars, bikes, and health. Our expertly curated information aims to empower our readers with the knowledge they need to protect their valuable assets and financial interests.