Low risk,low premium

The insurance space in India is getting competitive day by day. With a lot of new companies opening shop in the country...

The insurance space in India is getting competitive day by day. With a lot of new companies opening shop in the country,the race for garnering more market share is hotting up. While plain-vanilla insurance products make most sense for consumers,novelty and innovation in product design are being used by companies to mop up greater market share. Increasingly,you will find these companies targeting highly specific market segments with differentiated product offerings. One manifestation of this trend will be that insurance products that have so far been seen only in western markets will make their debut here.

For instance,so far exercising gave you good health. But now it could help you save money,not just on medical bills but also in the form of lower health insurance premium and gym membership fee. In the past,rash driving only led to a penalty. But now it could result in doubling of the premium charged for insurance.

So far in India,whether or not you are provided with insurance and the premium you are charged has depended on factors like your age,medical history and heredity. The flaw here is two-fold. This is too black-and-white an assessment: either you are classified as good risk and are offered insurance,or are classified as bad risk and denied insurance. What we are moving towards is a more accurate assessment of risk and a closer alignment of pricing with risk. Higher the risk,more will be the premium charged instead of being denied insurance. In such a regime,people who through their habits and lifestyle choices pose lower risk,can get lower premiums.

While companies in the West calculate the premium on the basis of an individuals risk profile,the trend is now slowing catching up in India as well.

A new world

Dont be surprised if your insurance company offers you free gym membership with your health insurance,provided you visit the gym at least 15 days a month. It may also gift you a free pedometer to check how much you walked in a year. Thereafter,depending on how much you walk and how regularly,the discount on your health insurance premium could rise or fall. Similarly,the parameters related to the ailments you suffer from could be monitored. If,as a result of judicious and healthy living,these parameters are found to be improving,your premium could be reduced.

Similar innovations are likely to be seen in the vehicle insurance space as well. The insurance company could,for instance,offer you a free global positioning system (GPS) device. This device would track how fast you drive and how many times you change lanes. If you drive at 120 kilometres per hour on an 80 kmph highway,or if you change lanes repeatedly at high speed,you could get a message saying: You are not insured to drive in a rally!. Repeated infractions could lead to doubling of the premium charged on your car insurance policy. The idea here is to focus on proactive risk management,rather than only paying up claims when accidents happen.

Premium could also vary according to the drivers profile. Besides looking at factors like age and gender,the profiling would become far more detailed. It would include the car drivers address and driving history. Premium could depend on factors like parking conditions,claim history,experience,penalties paid,profession,and kilometres driven per year. Typically,a customer would be asked as many as 80 questions. Based on such a detailed assessment his premium would be determined. Thus,it might come as a surprise to you,but even a change of address by one street could result in your insurance premium being hiked by 25 per cent,especially if parking conditions in the new street happen to be worse.

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Some trends are already visible in India,such as your profession having a bearing on your insurance premium. White-collared workers such as doctors,lawyers,CAs,teachers,and army personnel are generally very responsible and pay a lot of attention to safety rules. HDFC ERGO offers discount on car insurance premium to such people. The registered car owners age is another criterion that has an impact. A person above 35 years gets a 5 per cent discount while one above 45 years gets a 10 per cent discount on premium.

There is further good news. If you buy a luxury car that offer elaborate safety features and devices and many companies are ready to offer discounts up to 55 per cent on the premium.

Differentiation by gender

Men may turn green but interestingly women are charged lower premiums per year. Lets assume that a 40-year-old person wants to buy a 10-year term cover for a sum assured of Rs 20 lakh. For such a cover,Future Generali charges a premium of Rs 7,522 from men and only Rs 6,486 from women. Differential premiums are based on the internal assessment that women have a longer life expectancy and lower mortality rates compared to men. A woman at the age of 42 is assumed to be of the age of 40 for calculating premiums,since she has fewer medical problems then men of the same age.

Consumers too are turning smarter with the trend of comparing policies before buying catching on. In the UK,over 60 per cent customers engage in such comparisons. This trend is catching on in India too. Insurance portal such as our own allow you to conveniently compare insurance plans online,enabling you to save money on the purchase of insurance policies.

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Prepare then for a world where sedate and prudent behaviour gets rewarded while rash and irresponsible behaviour is penalised. u

The author is CEO,policybazaar.com