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Telematics or Usage-based Car Insurance in India

Team AckoApr 30, 2024

Four-wheelers started becoming a common sight on roads in developed countries after the first World War. However, cars were not as safe as they are now. Therefore, expenses for the damage to the car and the damage done to other’s property because of the car had to be borne by the vehicle owner. This is where there was a need for car insurance. The United Kingdom came up with compulsory car insurance in 1930 and other countries also followed. In the following decades, the car insurance industry went through an evolutionary phase and offered policies for Own Damage along with Add-ons.


Today, the internet and smartphones have changed the way people purchase insurance. Technology has made the insurance ecosystem simple, convenient, and easy. Now, the focus is on moving from generalization to personalization and Telematics or Usage-based Car Insurance will make it happen. Read ahead to know more about the use of telematics in the car insurance industry and usage-based car insurance in India.



What is Telematics?

Telematics is defined as the branch of information technology which deals with long-distance transmission of computerized information. Nowadays, the term ‘telematics’ has been associated with the automobile industry, especially regarding monitoring and tracking.

Telematics is widely used in commercial enterprises. For example, in GPS-enabled fleet tracking, a truck with an installed telematics device captures information pertaining to its route, engine, mileage, performance, etc., sends it to a cellular network, which is then transmitted to the company’s assigned server and displayed on a device used for monitoring the vehicle’s movement.

What is Usage-based Insurance or UBI?

A type of insurance where the payable premium for the policy is directly linked with the usage of the insured product/service is termed as usage-based insurance or UBI. In the car insurance industry, UBI is also known as Telematics insurance. Such type of usage-based car insurance is widely available for vehicles in developed countries.

Telematics or Usage-based Car Insurance:

Telematics can be understood as an amalgamation of telecommunication and informatics. In the auto insurance industry, Telematics is useful to track, store, and transfer driving-related data. This data comes in handy to understand the driving behaviour and charge appropriate vehicle insurance rates.

The payable premium for a conventional car insurance policy is mostly based on the car’s model (along with other things) and not on the driving abilities of the driver. If two people buy the same car model, it is likely that their car insurance premium will be similar. This is irrespective of the way they tend to drive the vehicle or the distance they cover with their car on an annual basis.

Raising a claim will affect the car insurance premium but that is not a true measure of the driver’s driving ability or vehicle usage and therefore, is not a defining parameter for personalized premium pricing as compared to Telematics.

With Telematics motor insurance or UBI, insurance companies will understand the car owner’s risk profile based on the distance covered, the average speed of the vehicle, frequency of using the vehicle, and the overall driving skills. This information is used to charge an appropriate premium. Therefore, a safe driver will pay less premium as compared to someone who is a rash driver and uses the car a lot; thereby increasing the chances of an accident, and, in turn, a claim.

Since the safe driver is less likely to be involved in an accident and, in turn, less likely to raise a claim, the premium charged is less. Note that this is a simplified explanation and the actual premium personalisation process will include a lot of data points and deep analysis.

Usage-based Car Insurance in India:

There have been several news reports that suggest that the Insurance Regulatory and Development Authority of India (IRDAI) is in favour of usage-based car insurance. With the apex insurance body in the country encouraging insurers, it is likely that major vehicle insurance companies will start offering such policies in the future. Some insurers have initiated such policies but it will take time for the concept to be accepted wholeheartedly by all stakeholders of the motor insurance industry because of the challenges involved; for example, wide-spread use of tracking/Telematics devices in cars.

Also, read: IDV in Car Insurance

How Does Usage-Based or Telematics Car Insurance Work?

UBI can be simply explained as car insurance based on driving. A Telematics device is installed in the vehicle that tracks and notes where, when, and how the vehicle was driven? What was its speed? Was the vehicle used for long journeys or short trips? Does the driver follow the speed limit throughout the year? Advanced analytics includes records related to hand braking, rapid acceleration, pattern of acceleration and braking, etc. All this information is analysed by the insurance company to arrive at the car owner/driver’ risk profile and the premium is charged accordingly.

Here’s an example of UBI:

Mr A uses his car on the weekends to travel within the city. He drives within speed limits and is an experienced driver with good driving skills. Mr B is a new driver who is yet to master the art of driving. He often accelerates and brakes abruptly and drives his car during the week. He goes on car trips on the weekends.

Mr A will be charged less premium because he is a safe driver and does not use his car that often, which reduces his chances of raising a claim. On the other hand, Mr B is a risky driver as he is new to driving, his driving pattern is rash and he uses his car a lot, thereby increasing the probability of car damage and, in turn, of a claim.

How Do I Report My Driving with UBI?

UBI does not require filing usage reports. The process is automatic. In most cases, you do not have to report your driving-related information to the insurance company. There are different ways in which the insurance company can track your driving and prepare their reports. Modern technology has offered a lot of options, here are some of them.

1) Mobile App:

The insurance company can ask you to download a specific mobile app and request you to adhere to certain privacy settings to make you and your car’s movements trackable.

2) Plug-in Device:

A tracking device can be plugged into your car just as you plug a pen drive in your laptop.

3) GPS Devices:

Sophisticated GPS devices can also function as a tracking device and share the necessary driving information with the insurance company.

4) On-board Sensors:

On-board sensors can be installed in the vehicle that can store vehicle-related information and share it real-time or make it accessible at a later stage.

5) Mileage (Miles) Detection:

Here, the installed device’s purpose is to note and convey the distance travelled by the vehicle. The insurance premium is based on the distance. 

Benefits of Telematics Car Insurance:

Usage-based car insurance in India will be a boon for better drivers as well as insurance companies looking to offer personalised insurance policies. Here are the top benefits of Telematics car insurance.

  • Driving data can make the driver more aware of their driving habits and can help them become better.

  • Safe driving will lead to lower premiums, which might encourage people to drive cautiously and follow the stipulated speed limit.  

  • Better drivers can collectively reduce road accidents and promote road safety.

  • Good drivers will be able to save money on insurance premiums.

  • Those car owners who do not use their vehicle frequently will have to pay less premium compared to the premium for conventional policies.

  • With the right kind of data, the insurance company can offer new, improved, and beneficial need-based insurance policies to specific car owners leading to growth in profits for the insurer and extensive insurance and satisfaction for the policyholder.

Various Types of Usage-Based Car Insurance:

Globally, insurance companies offer multiple options to the policyholders concerning UBI. The premium is based on the chosen option. Note that these types can be known differently in different regions of the world. There is a frequent overlap when it comes to the terminology used to identify the type of insurance. Here’s a list of different types of UBI for vehicles.

1) Pay as You Drive (PAYD):

The car insurance premium is charged based on the amount of driving done in the case of Pay as You Drive insurance.

2) Pay How You Drive (PHYD):

The car insurance premium is charged based on the driving skills such as acceleration, braking, etc. in the Pay How You Drive model.

3) Pay as You Go (PAYG):

The Pay as You Go car insurance model requires the installation of a Telematics device and can be a combination of the above-mentioned points.

4) Distance-based Insurance:

Pay Per Mile auto insurance is based on the number of miles covered by the vehicle during the policy period.

Usage-based Motor Insurance (UBI) Vs Conventional Motor Insurance:

Conventional insurance has served the policyholders for decades. Comparatively, UBI is a new concept and is yet to survive the test of time. As it is tech-based, it is bound to undergo upgradation and offer more benefits in the future. UBI is taking slow and steady steps in the Indian car insurance segment. However, it will be just a matter of time when it can accelerate ahead of conventional insurance by leveraging technology.

Just as traditional insurance companies are changing their strategies based on new-age insurers and adapting and integrating technology in their functions, conventional insurance and UBI will also, most likely, undergo a similar transfusion to ensure policyholders get the best available policy.

Here are some basic distinguishing points between conventional/existing insurance (commonly-offered Third-party Insurance and Comprehensive car insurance plans) and UBI in India.

Existing Car Insurance Usage-based Car Insurance
Proven track record of being a functional model. Yet to be proved as a widely accepted functional model.
Offers generalized policies. Offers personalized policies.
Does not need installation of a device in the vehicle. Needs installation/presence of a tracker/Telematics device in the vehicle.
Comparatively, the scope for growth and expansion is limited. Capable of exponential growth.

Which Insurance Is Best for You?

UBI is still at a nascent stage in the Indian context. It will take time for the concept to be accepted widely. If you have to make a choice between a conventional policy (like a Comprehensive car insurance plan for a year) and a UBI policy, you will have to dig deep regarding the premium charged, coverage offered, and the terms and conditions of UBI since it is a new policy.

The base of the decision is – how frequently do you use your vehicle, the probability of uncertainty surrounding your vehicle, and the amount of money you are willing to pay to insure your vehicle. Whichever type of insurance you choose, ensure to make an informed decision. Resolve all doubts before making the payment. Understand the fine print and go through the insurance provider’s profile, especially when it comes to the claim settlement ability of the insurer.

Frequently Asked Questions:

Usage-based Insurance is a relatively new idea for the Indian customer. Therefore, it is natural to have some queries surrounding it. The article and the following FAQs section will resolve most of them but if you have specific concerns you can send your query at [email protected].

Is Telematics motor insurance beneficial for a policyholder?


Telematics car insurance can be beneficial for those who drive safely, as it can result in substantial savings on the payable insurance premium.

Is Telematics or UBI approved by IRDAI?


Insurance Regulatory and Development Authority of India’s (IRDAI) regulatory sandbox permits such type of car insurance. Read the policy document carefully before purchasing. Buy insurance from a certified company.

What is the biggest challenge when it comes to the implementation of Telematics or UBI on a large scale?


Infrastructure to manage usage-based car insurance in India and the customer’s willingness to agree to meticulous tracking can be viewed as major challenges concerning the implementation of Telematics or UBI at a wider level throughout the country.

Can I choose UBI for my new car in India?


UBI is not widely available in the country; however, some insurers do offer the same. You can research about such types of car insurance online, check car insurance fees, compare approximate rates, and then decide if you want to select UBI or a conventional policy.

I like the UBI concept but I have privacy concerns related to the data being collected. What should I do?


You can clarify your doubts by getting in touch with the insurance provider offering the UBI. If you have serious concerns and are not too keen on sharing driving-related data, you can opt for a Comprehensive car insurance policy from new-age insurers and customize it with the help of suitable Add-ons. Digital-first insurers such as Acko offer car insurance policies at incredibly low prices.

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on industry experience and several secondary sources on the internet; and is subject to changes. Please go through the applicable policy wordings for updated ACKO-centric content and before making any insurance-related decisions.

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