Thanks to technology advancements like blockchain, the internet of things (IoT), and big data, insurtech is now reshaping the landscape of the insurance industry. One typical example is ‘pay as you drive’ (PAYD) insurance. This kind of insurance adjusts premiums based on a driver’s real time driving behavior, rather than charging a flat premium annually. This approach has gained momentum across Europe and North America, and in August 2018 it was reported that such insurance policies will soon make their debut in China. It is forecasted that PAYD insurance will account for 20-25% of the market share by 2020.
With this in mind, it is crucial that you learn more about this new form of motor insurance ahead of time. In today’s Kwiksure article, we are going to highlight the definition of PAYD, the way it works, and how it can benefit both drivers and insurers.
Also known as ‘usage-based insurance’ (UBI), ‘pay how you drive’ (PHYD), and mile-based auto insurance, PAYD started in the late 2000s as a niche experiment among a few regional insurance companies. Unlike traditional one-size-fits-all pricing model, PAYD insurance tracks your driving pattern and considers more data (time, distance, behavior, and place) to determine your insurance costs.
While the conventional approach reflects your driving history instead of your present driving behavior, PAYD can provide insurers with much more real-time data analysis and the bases for adjusting one’s premium dynamically.
There are three types of ‘pay as you drive’ insurance, which gather different data to calculate premiums:
The odometer reading of a vehicle.
Mileage from GPS data, or the number of minutes the vehicle is being used.
Other data collected from the vehicle, including speed, time-of-day, historic riskiness of the road, and driving actions, in addition to distance or time travelled.
Insurers will require you to install a black (telematics) box, dongle, or mobile phone app in your car.
Your driving data such as mileage, speed, time of day driving, and braking patterns will be tracked.
The device will send the data to the insurer for periodic reviews of your driving. Your premium or cost per mile will then be adjusted accordingly.
Those who drive sensibly will have lower and fairer premiums, so they can save more money. It’s also a good chance for young drivers without much experience to prove themselves to be reliable drivers, as well. Likewise, those who aren’t driving much can benefit from low usage and enjoy a cheaper premium.
Potential hikes in premiums can deter drivers from engaging in high-risk behaviors, such as speeding and reckless driving. These drivers might have higher incentives to improve their driving habit, or quit driving altogether. Consequently, there will be fewer high-risk drivers and, hence, fewer traffic accidents on the road.
The GPS technology in telematics-based insurance can be used to locate a vehicle after it breaks down, crashes, or gets stolen.
Insurers can have more data on hand for analyzing the overall driving behavior of the policyholder. Thus, they can make more accurate, more informed underwriting decisions for both new and old clients. Clients with higher risk will be differentiated, so it is less likely that insurance companies will insure high-risk drivers and pay out on large claims that end up increasing rates for safe drivers.
Since all data is transmitted to the system almost instantly, any change in behavior, such as refraining from braking sharply, or staying off the roads at night, will be reflected in the premium for that month immediately.
It seems that the trend of ‘pay as you drive’ insurance has yet to arrive Hong Kong, but if you want to know more about motor insurance premiums, don’t hesitate to contact us today. As an established and independent motor insurance broker, we have over 18 years of experience in matching clients with insurance policies that meet their specific needs. Our team of experts will give you a free quote and price comparison!
Kwiksure has over 20 years of experience in the car insurance industry, comparing quotes from over 60 insurers in Hong Kong. Use our online quotation tool now to get a free car insurance quote!
The above information is for reference only. Kwiksure takes no responsibility for the accuracy and timeliness of the information. For the coverage, mode of compensation, benefit limit and premium levels of any specific insurance plan, please refer to the relevant policy terms.
Kwiksure is a licensed motor insurance brokerage company with over 20 years of experience in insurance. The company strives to simplify insurance and select the best insurance plans for customers that fit their budget and coverage needs.
Kwiksure provides a range of insurance products, including car insurance, motorcycle insurance, cross-border insurance between Hong Kong and Mainland China, home insurance, travel insurance, domestic helper insurance, and voluntary medical insurance. The team has been named "Best Car Insurance Broker" and "Outstanding Leadership Award" by various media outlets over the years.
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