Car insurance offers coverage against third-party liability and any accident damage caused to you or your car. As per the Motor Vehicles Act, 1988, a third-party liability cover is mandatory for all vehicles on public spaces in India. Whether you own a bike or car, it is important to have a two-wheeler insurance or four-wheeler insurance, respectively.There are 2 types of car insurance policies available on the market – third-party car insurance and comprehensive insurance. As the name suggests, third-party insurance offers coverage against any damage caused by your car to a third-party.
You and your car aren’t covered by a third-party insurance. In the case of a comprehensive policy, you get coverage for third-party liability as well as any damages caused to you and your car due to an accident, theft or natural calamity.
The Insured Declared Value (IDV) of the car, the make and model of the car, year of manufacture, engine capacity, and geographical location are the main parameters used to determine the car insurance premium. IDV is the value put on a vehicle by the insurance company at the time of purchase of car insurance.
As for geographical location, India is divided into 2 zones – Zone A which is high accident-risk in comparison to Zone B. The insurance premium is higher in Zone A which includes New Delhi, Chennai, Bangalore, Pune, Ahmedabad, Kolkata, Hyderabad, and Mumbai while Zone B includes the rest of the country.
As per the current parameters used to determine car insurance premium, drivers who drive carefully, cover less miles, and choose to drive when the traffic is less pay the same premium as those who drive rashly and cover more miles.
This seems unfair to the drivers who are being careful when on the road.
That is why, IRDAI has proposed usage-based-insurance premium calculation wherein the driving habits of the policyholder, distance covered, and vehicle usage is monitored in real time. The collected data will be used to determine the insurance premium.
How does usage based insurance work?
The concept of Telematics will be used to determine a policyholder’s car insurance premium.
The car will be fitted with a Black Box which records speed and distance travelled by the driver. In simple words, your car insurance cost will be determined based on the vehicle usage.
The usage data will be recorded by Telematics, a smart device working on long-distance information transmission technology. The smart device will be installed in the on-board diagnostics centre of the car.
The type of roads travelled, the specific time of the day, and the date are also recorded by the smart device. The information from the device will be relayed through an app that is installed on the car owner’s smartphone.
The telematics device is compatible with OBD2-compliant cars. Cars manufactured after 2010 are OBD2-compliant as per government-mandated rules. The telematics technology was introduced in the US and the UK in the year, 2000. Now, India, South Africa, and Italy are using the concept in motor insurance.

Telematics is the integration of Telecommunications and Information Technology for vehicles. Usage Based Insurance is also known as GPS Car Insurance, Pay-as-You-Drive-Insurance, Smart Box Insurance, and Black Box Insurance.
Benefits of using Telematics
Telematics technology not only helps insurers but also the policyholders:

    • The uses of telematics include real-time navigation, vehicle tracking, and roadside assistance.
    • Telematics can be used to retrieve stolen cars, help drivers take better routes, and also save up on the costs of fuel and maintenance.
    • It can help motor insurance companies better segregate the customers based on the risk assessment of each individual. By analysing the driving history of a customer, Telematics can help insurers accurately estimate damages caused due to an accident and reduce fraud.
    • Drivers can share the real time location of their cars with others.
    • Car owners will be alerted if the driver breaks a speed limit via a notification.
    • In the case of a road accident, the driver of the car can request for roadside assistance through the Telematics app.

Penetration of Telematics in India
There are certain concerns regarding the use of telematics technology in motor insurance such as the inappropriation of the data collected by the insurer or the manufacturer, the cost of installing the device, and the low demand of usage based insurance in the country.
In India, as of now only one leading motor insurance provider is offering usage based insurance. The insurer is offering the Telematics-based device for free of cost to customers who purchase the company’s add-on covers like personal accident cover, key replacement cover, etc.
Life insurance and health insurance premiums are determined based on the individual’s requirement, age, lifestyle habits, gender, and medical history.

With Telematics, the same concept can applied to premium calculation in motor insurance. Here, the cost of car insurance will be determined based on real-time data such as the distance traveled, driving habits, and usage of the car.