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, kilometer 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.

The legacy of a tariff-based pricing spawned a culture where neither an agent nor the policyholder is willing to provide any additional information that can be used for better pricing. Now, even when insurers want to collect additional information about customers, they face strong opposition from the distributors.

This, coupled with policyholders' apathy, compounds the problem.

In order to pass on lower premiums and have a better customer profile, we need more information for a significantly long period to ascertain the risks involved. Policyholders should provide insurers as much information as possible or, at the least, the information demanded by insurers. Policyholders may then have to pay only lower premiums.

Even if the information provided or available is limited, the policyholders can still lower their premium outgo. This is how: Check your no-claim-bonus (NCB) status and ensure that you get the correct NCB on your car's renewal. Even if you are buying a new car, you can transfer the NCB accrued from your old car on the newly purchased car's insurance policy provided you have sold the old vehicle.

Check your car's insurance value or the insured's declared value (IDV). It should approximately reflect the resale price of your car at the time of insurance.

Make sure that you are buying the add-on covers that you want to buy rather than what is forced on you by your distributor.

Some insurers like Bajaj Allianz provide additional discounts to customers on providing some extra information when they buy policies from the company's website. Customers who are confident of their safe driving abilities or follow safe driving habits can opt for higher deductible beyond the compulsory deductible of 500 for 1500-cc cars or below and 1,000 for above 1500-cc cars.

Higher voluntary deductible can earn discounts of 20% to 35% of the OD premium subject to a maximum of 750 to 2,500. The voluntary deductible can be chosen from a minimum of 2,500 to a maximum of 15,000.

These would be added to the appropriate compulsory deductibles.

The variables used to arrive at premium rates will only grow in the coming years as data collection becomes more robust.

Those customers, who are willing to provide more information, will benefit by way of reduced premium, while others will pay the average or higher price.

To understand the nuances of different types of policies and its price, feel free to seek the help of InsuranceMall to select the right products based on your need. Or you can directly call them on +91-22-30503050

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