Pay as you drive (PAYD) is a new concept that has been launched by the insurance companies of many countries as a means to tide over the fall in the sales witnessed by them over the last few months. The power held by the motorist to switch from one auto insurance company to another has seen a plunge in the customer loyalty. The severe competition and the need to enhance the customer loyalty besides many other factors have contributed to the introduction of the new concept in car insurance – pay as you drive.
In this article, we will evaluate how the concept works and the reason PAYD is stated as the future for car insurance.
What is Pay As You Drive, PAYD
The concept, PAYD, makes use of a telematics box that gets installed into the car of the motorist, which has a GPS module that records the GPS signals when the car is on the road. The current location of the motorist, the direction and the speed of the vehicle, the time and the actual date of the journey, and many other essential information gets collected and is transmitted by the telematics box to the data center of the insurance company. It matches the map and sends a regular update to the insurance company, who then sends the bill to the policyholder based on the actual usage.
The PAYD concept of auto insurance takes into consideration many parameters for the premium calculation. The distance actually traveled by the policyholder is one primary factor that determines the cost of premium. The type of road taken by the motorist, whether it is the motorway, country and trunk roads, inner-city roads, is another feature that is taken into account in defining premium. While some insurance agents claim that the risk involved in a motorway is lower on account of the multiple lanes in them as compared to the country roads, there are others who hold a different opinion to it.
The premium is also dependent on the city where it is traveled, average speed of travel, etc. to name a few. The insurance companies also evaluate the time of travel for the premium evaluation. A motorist who drives during the rush hour is considered more risky than those traveling on a weekend or during off-peak hours during weekdays.
These factors are recorded through the telematics device installed in the car that sends the information to the insurance company for premium calculation based on the risk involved.
Advantages of PAYD system of Auto Insurance
The major types of motorists who can reap maximum advantage of the ‘pay as you drive’ insurance scheme are the new drivers who, otherwise, are pulled into the high-risk category by the insurance companies. Driving during weekends or when the traffic is less at a safe speed can make them eligible for lower rates of premium through the PAYD system of auto insurance.
Similarly, the senior citizens who prefer to take their cars on the road during weekends to avoid the weekday traffic can save through this new concept of auto insurance.
Drivers who adhere to the speed limits, who take the cars on the weekends to avoid the weekday traffic, who are low-mileage drivers and new drivers who perform sensibly can find the ‘pay as you drive’ system highly advantageous.