Just like stocks, TP motor insurance needs risk-based pricing: Dr. Tapan Singhel
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As the Indian insurance industry continues to evolve to meet rising customer expectations and emerging risks, most product categories have adapted to digital transformation.Yet, third party (TP) motor insurance remains unchanged, despite being a mandatory and high-impact product. It is time we revisit this space and bring it up to date with the realities of today's mobility and risk environment.TP premiums have remained essentially unchanged, except for a few categories, over the last five years. Leave aside inflation and other elements, the issue is much deeper.India's road safety situation is alarming. Every year, the country witnesses nearly five lakh road accidents, resulting in over one and a half lakh fatalities and leaving more than four lakh citizens injured. (source: MORTH)Despite these figures, third party motor insurance premiums remain fixed based on vehicle category, without factoring in the individual behaviour or history of the driver.This one-size-fits-all pricing structure fails to incentivise safe driving and often results in responsible drivers subsidising the riskier ones.We must create a more equitable system. De-tariffing third party insurance is not only about ensuring the viability of insurance business models or maintaining sound loss and combined ratios.It is about building a more responsible, accountable and safety-conscious society. When premiums are based on individual risk, it brings fairness into the equation and encourages people to drive more carefully.A risk-based premium structure would enable insurers to assess factors such as driving history, claim frequency, accident records, and traffic violations when determining premiums.Such an approach would be beneficial for commercial vehicle operators as well. Fleet owners who invest in driver training, follow maintenance protocols and uphold safety standards would be rewarded with lower insurance costs, while others would be nudged to improve their practices.Beyond fairness, the wider societal benefits are significant. A system that financially rewards safe driving behaviour could contribute to a tangible reduction in accidents and fatalities.This would ease the pressure on emergency medical services and public health infrastructure. Initiatives like the Zero Fatality Corridor on the Mumbai-Pune Expressway have demonstrated how behavioural and structural interventions can reduce road crash deaths by almost 60 per cent.Technology can play a transformative role. With tools such as GPS tracking, telematics , artificial intelligence-driven driving scores and digital claims histories, insurers can build detailed behavioural profiles for each driver or vehicle.This enables the creation of dynamic pricing models and even reward-based systems linked to performance. Insurance can thereby evolve from being a passive financial product to a proactive instrument for behavioural change.The existing uniform pricing model for TP motor insurance does not reflect the complexity and diversity of road risks in today's world. De-tariffing presents an opportunity to realign pricing with real-world driving patterns and societal objectives.It is a step towards making roads safer, insurance more personalised, and the system more efficient for all stakeholders.It's time to make insurance smarter, not only through technology, but also through purpose, where those who drive safely pay less and the benefits ripple across society as a whole.(The author, Dr. Tapan Singhel is MD & CEO at Bajaj Allianz General Insurance : Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
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