How vehicle insurance is being disrupted
HAVING fixed premiums on your car insurance is a model of the past. Disruption is introducing alternative ways to derive premiums and charge users, while still compensating the insurer for the risk it assumes.
Most insurers determine your premiums based on your location, age, car model and colour, driving history and gender. Your premium may change annually, depending on how your risk profile has changed, and to account for inflation. Legacy options like this charge you a fixed monthly premium.
An alternative method is location-based insurance. It seems obvious when you think about it. Consider if your car was parked in your garage for half the month. Since insurance premiums are based on risk, was your car really as at risk in your garage as it would’ve been if you had spent that time on the road instead?
This type of plan requires a tracker to be fitted in your car so that the location data can be fed to your insurer, to arrive at your monthly premiums.
An alternative monitoring method is an app that allows users to turn their insurance on and off as they please. This is a burden on the user, however, and forgetting to turn the app back on can be a costly mistake.
Driving-behaviour-based insurance is a clever way of getting even more granular on risk. With a tracking device, it can monitor your cornering, acceleration, braking and impact activity. Based on how risky your driving behaviour is, your premium is adjusted. This means of assessment is particularly rewarding for those who consider themselves good drivers and practise safe, defensive driving.
Discovery Vitality Drive reimburses part of your premiums and petrol costs based on your good driving behaviour.
Value-based insurance keeps in mind that your car’s value is decreasing over time. Adjustments are made to your premium based on the monthly changing value of your insurance and makes sure you aren’t paying anything extra for the replacement value of your car. King Price has introduced this form of car insurance in the hopes of stealing market share from existing players.
Local start-ups have thus far focused on improvements in the sign-up process. Naked Insurance, for example, has reduced the time to insure to only three minutes. The next push may see insurers getting smarter about how they calculate and charge premiums, in an effort to reduce risk and return value to the consumer.