Motor insurance premium in future may be determined through black box-based real-time monitoring of driving habits, vehicle usage and even distances covered, as per a proposal mooted by regulator Irda. Inviting public comments, it has sought to know among other issues, as to why should a careful driver who doesn't cover many miles and drives predominantly during peak hours should pay the same premium as the one who drives recklessly? At present, motor insurance in India is being priced based on parameters like the 'make and model' of the vehicle, its capacity, and the geographical use.

"There are a variety of driving habits of customers and usage of vehicles also varies widely because of many factors like new forms of transport, demographic shifts, whether one is driving one's own car or somebody else's etc," Irda said while floating the concept of 'telematics' to determine motor insurance premium.

Telematics is about integrated use of telecommunications and IT for vehicles. It is used for real-time navigation, roadside assistance, and vehicle tracking. Telematics insurance is also known 'Black Box Insurance', 'GPS Car Insurance', 'Smart Box Insurance', 'Pay-as-you-Drive-Insurance' and 'Usage Based Insurance', among others. The technology was introduced in the UK and USA in 2000 and cost is gradually is falling due to smart phone technology combined with an easier and cheaper installation process.

Italy and South Africa too are using the concept. In its discussion paper on which comments have been invited till September 8, Irda that in the context of motor insurance, 'Telematics' is "today a much talked about concept as it enables a more scientific methodology for pricing, apart from having certain advantages for the insured, insurer and the society as a whole".

Irda said Telematics Insurance works by fitting a vehicle with a small device-commonly known as a 'black box' that records speed patterns and distance travelled. It also records data about the type of road/s the driver is driving on and when (whether night or day or during the weekend) and how long he has been driving.

Once implemented, the system could see reduction in premium paid by "a careful driver who doesn't cover many miles and drives predominantly during offpeak hours". Under Telematics, the motor insurance premium could be directly proportional to the performance and usage of the vehicle, the regulator said. The system could be used to retrieve stolen vehicles and guiding drivers about efficient routes, and help him save fuel and maintenance cost.

Telematics, the Irda said will also help insurers in better segmentation of customers by assessing the risk more accurately. "Telematics helps insurers estimate more accurately, accident damages and reduce fraud by enabling analysis of driving data (such as hard braking, speed and time) during an accident," the regulator said.