Based on the loss ratios across models and states, the pricing for own damage insurance will be decided
Your Volkswagen car could incur a higher rate of own damage premium versus a Mahindra & Mahindra (M&M), Chevrolet or Maruti Suzuki car.
Data mined by web aggregator Policybazaar.com showed that on one hand while the loss ratios of Volkswagen exceed other car-makers across several states, the average cost per claim stood at Rs 27,468. The portal is now using these analytics to price insurance products for these vehicle owners.
According to the report, Volkswagen had a loss ratio of 104 percent, that is for every Rs 100 paid as premium, Rs 104 was paid as claim. On the other hand, M&M had loss ratios of only 60 percent, while Chevrolet had 63 percent and Maruti Suzuki had 68 percent.
The report, ‘Driving the Digital Way: The World of Car Insurance Buyers’ that Policybazaar shared with Moneycontrol, talks about the loss ratios of the car own damage segment and the models, fuel type as well as customer type driving a particular claim behaviour.
However, in terms of earned proportion, or market share, Maruti Suzuki stood on top with 24 percent followed closely by Hyundai with 22 percent.
Motor insurance consists of third party insurance and own damage insurance. Third party cover is mandatory and covers any liability on vehicle owners for accidents involving other vehicles and any injury/death to other car owners or pedestrians. Own damage portion covers the individual’s and any insurance for their own vehicle and will pay for any internal or external damage to it.
The report looks at the loss ratios of the private car portfolio of Policybazaar and the various sub-segments arising within. “Strategically we have given attention to the own-damage component of the portfolio as it anchors the underwriting strategies for all market players driving 50-60 percent of the overall private car premiums,” said the report. Third party insurance pricing is regulated by Insurance Regulatory and Development Authority of India (IRDAI) and is revised on an annual basis.
Data infographics by Ritesh Presswala
In an interaction with Moneycontrol, Tarun Mathur, Director, Policybazaar.com said that they wanted to link user behavior to the price of the product. “There was a need in the market to differentiate customers based on their vehicle and other behavioural patterns displayed by them,” he explained.
Similarly, by fuel type. diesel cars had a higher loss ratio of 87 percent while CNG had 84 percent and petrol had 64 percent. Another interesting data that came out in the report was that SUVs/mini SUVs had a lower loss ratio across all models, whereas hatchbacks had a much higher loss ratio.
For instance, Hyundai Creta was at 32 percent loss ratio whereas a Toyota Etios Liva had a loss ratio of 110 percent.
Among states, Haryana fared the worst (84 percent) when it came to loss ratios, while Karnataka and Andhra Pradesh fared the best with 59 percent loss ratios.
Vaidyanathan Ramani, Head-Product & Innovation, Policybazaar.com said that this is a step that will help in bringing out better underwriting parameters. “Often, car insurance is sold in a certain way because insurers do not have adequate data to make stark differences in purchase behaviour or between different vehicle models. We are hoping that this data will be able to help insurers make better decisions,” he added.
Apart from this, digital behaviour of customers have also been looked at. The report said that self-serviced car insurance purchases exhibit lower loss ratios apart. Also, it said that customers who renew their car insurance atleast four days prior to expiry are profitable.
Based on a pool concept, insurance compensates claimants from the premium money that it has collected from multiple individuals. When it is said that loss ratios are high, it means that the claim received are much higher than premiums collected.
For instance, if the loss ratio is 110 percent, it means that for every Rs 100 collected as premium, Rs 110 is paid as claim to the policyholder. For a business to be profitable, the loss ratios should be below 100 percent.