It is now possible to pay for car insurance premium based on the actual distance travelled, unlike the current arrangement where car owners pay for either a monthly, quarterly or yearly cover. This follows the launch of “pay as you drive” comprehensive motor insurance cover by Gateway Insurance Company.
The insurance firm has introduced a cover that will see motorists pay premiums based on their time on the road. The product, although building on current insurance practices, it is the use of technology that makes it a breath of freshness for the insurance sector. The cover charges premiums based on actual distances travelled and drivers will also pay their premiums through the use of mobile phone money transfer platforms.
The current pricing of motor insurance is driven by the value of the car, multiplied by a certain minimum rate.
“This mathematical formula does not differentiate between high mileage drivers and a low mileage driver, a good driver and a careless driver, or even a matatu, which is on the road for ten hours a day, and wheat farmer who goes to town once a week,” Gateway Insurance CEO, Godfrey Kioi said last week when the company introduced the product.
“In other words, when it comes to the pricing, we all represent the same level of risks regardless of when, where and how far we drive,” Kioi said. This means that the more you drive, the more you should pay. The less you drive, the less you should pay.
This is the first time in Kenya that comprehensive motor insurance is based on usage though a similar model has been successfully introduced in other countries like Netherlands, USA, Canada, UK, Israel, Australia and South Africa. In South Africa, vehicles are required to be fitted with a tracker to tame fraudsters and some products have a reward system for drivers who do not make claims over a period.
Gateway will use a tracking device that will enable it to determine where and when occurs.
“We used technology graduates who understand the usability aspects of new age technology such as mobile phones- which are used by anyone regardless of stage in life,” he said.
The new product also comes in the wake of growing fuel costs and the need by motor car owners to change their driving patterns to accommodate the rising costs of petrol, increased traffic congestion and strained household budgets. Environmentally conscious motorists are also cutting down on driving their cars in response to climate concerns.
“We want to give these people a fair go. Pay-as-you-drive reflects large scale changes in motoring habits and in so doing, accommodates the changing needs of motorists,” Mr Kio said.
Other than being affordable and easy and convenient to use, the new product is also expected to cut down on fraud- one of the key problems facing the insurance industry.
The new product further ensures that cost control premiums is in the discretion of the customer “and consequently, this greatly improves the affordability of paying only for kilometers travelled as the annual premium can be paid in bundles.
The customers can roll over the unused top up balance to the next insurance period after the expiry if unused. But the initial purchase of the minimum balance of 5,000km shall not be rolled over or refunded.
To enjoy the wider range of benefits offered by the new product, insured drivers must agree to plug in a mile-manager device into their vehicles which will automatically record the number of miles driven.
If you are running low on purchased insurance kilometres, the technology on which ‘pay as you drive’ insurance is built on allows you to top up using your mobile phone or by logging in on to the Internet. Like airtime, it can be bought in manageable amounts that are syncronised with the motorist’s wallet.
Other than the need to stay ahead of the pack both in product and in profits, Kioi says that recent changes in technology has called for insurance companies to implement other ways of pricing vehicle insurance premium.
Technology has already changed the way banks do their business, grown their customer base and dramatically improved the rate at which ordinary Kenya’s have access to financial services.
“It is now time for the insurance sector to embrace technology and improve penetration from three per cent to a more representative number over the next short while.”
“While at this stage, it does not address the how and when of driving, it allows us to begin a journey where we can start with the known and gradually move on to the unknown,” he added.
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