Introducing ‘pay as you drive’ insurance

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.

For drivers

It rewards safe drivers

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.

It discourages high-risk driving

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.

It improves driver and vehicle safety

The GPS technology in telematics-based insurance can be used to locate a vehicle after it breaks down, crashes, or gets stolen.

For insurers

It helps risk assessment

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.

It reflects driving behavior rapidly

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!