Factors that could determine the premium you pay on car insurance

25-Jul-2011
Source : The Economic Times

After browsing through catalogues, visits to car showrooms, advice from friends, and a thorough check of your financials, you have finally zeroed in on the car you want to buy. You would naturally have taken into account the insurance premium you pay, which currently depends on the model of the car, the security and safety features installed in the vehicle, the driver’s profile and whether the car is for commercial or private usage.
Vijay Kumar, head of motor insurance atBajaj Allianz General Insurance, says, "So far, the premium has been focused more on the vehicle and less on the user. However, this is bound to change soon, as the premium will depend on the parameters that lower the risk. So, more user-specific factors which influence risk will be considered." Here are some that may impact the premium of yourcar insurance in the coming years.
Distance travelled: The number of kilometres you log in each month will be an important determinant. How? The reasoning is that less travelling translates to lower risk, and vice versa. Says Sanjay Datta, head of customer service,ICICI Lombard General Insurance. "If a car is driven less than 5 km a day, say, to drop your kid to school and back, it will be perceived to have lower risk than a vehicle that is driven about 50 km each day, say, to and from your office."
However, Karan Chopra, head, retail business,HDFC ERGO General Insurance, says that to include this feature a device will have to be installed in the car to be able to track the odometer. So it might take some time to include mileage as a factor for deciding the premium because the insurance companies are yet to work out the economics of this.
Credit history and behavioural patterns: Internationally, insurance companies have linked credit history and customer behaviour to premium amount. A credit score means more authentic information about the individual’s track record regarding payment and defaults. KG Krishnamoorthy Rao, managing director and CEO, Future Generali India Insurance, says, "Credit score may be used in the next 2-3 years as insurers are still to develop better fraud control mechanisms."
Behavioural patterns may be derived fromchoices made by the individual, such as the colour of the car. For instance, a person who owns a red car is considered to be more aggressive than someone who owns a white car, and, hence, the risk associated with the former is seen to be higher.
Choice of city: Kumar of Bajaj Allianz General Insurance, says, "When it comes to the premium being determined by geography, currently, the classification is not too granular." As of now, it is divided into two zones-A and B. Zone A includes Ahmedabad, Bangalore, Chennai, Hyderabad, Kolkata, Mumbai, New Delhi and Pune, whereas the rest of India falls into Zone B. The vehicles in Zone A are considered to be more vulnerable to theft and accidents and, therefore, their premiums are higher. Kumar adds, "Ideally, the classification should be on the basis of cities and there should be demarcations within the city too."