With technological advances shaping the insurance industry, more insurers and their customers are adopting the so-called usage-based options which set premiums based on how well a driver performs and/or the mileage.
These initiatives allow motor insurance to be tailored to specific driving habits and usage patterns.
They also translate to potentially lower premiums and excess - the amount a policyholder has to pay to make a claim - and a likely reduction in accidents as the devices associated with such plans promote safe driving.
Mr Bob Thaker, chief executive of DirectAsia Insurance Singapore, believes usage-based insurance plans "are the future".
"As the market evolves and consumers get financially savvier, the one-size-fits-all approach to insurance needs to change... For motorists, this means the insurance premium they pay reflects their current driving habits," he said.
Mr Jeremy Lian, senior vice-president of technical services at MSIG Insurance, says such plans allow drivers to be in control of their insurance terms and savings. They also encourage safe driving.
In traditional motor insurance, a motorist's age and years of driving experience are taken into account in the policy premium and excess.
The new approach turns that on its head, as Mr Lian notes.
"With MSIG's UMax plan, you can prove yourself to be a safe driver and enjoy savings on your policy excess, regardless of your age or driving experience. This will not be possible in a traditional model. The driver will have to pay a standard excess even though he has been a good driver before the accident."
In the case of young drivers, the excess can be as high as $3,000.
The Sunday Times highlights various types of usage-based motor insurance.
HOW USAGE-BASED MOTOR INSURANCE WORKS
Most of these plans measure one of two things - how well you drive and how much you drive.
Insurers utilise telematics technology to capture a driver's data and offer premium discounts based on several factors, including mileage and driving behaviour such as acceleration, braking and cornering.
"This approach complements the existing approach to how we calculate motor insurance premiums in addition to the traditional variables such as driving experience and claims experience," says Mr Manik Bucha, head of individual personal insurance at AIG Asia Pacific Insurance (AIG Singapore).
There are essentially two types of usage-based insurance - technology-based systems that require the installation of an on-board device or smartphone app, or trust-based plans, where there is no tracking or telematics system in the vehicle.
So far, insurers have taken a customer-centric approach by promoting safety via discounts only. As such, there are no surcharges for poor scores.
SUITABILITY OF USAGE-BASED MOTOR INSURANCE PLANS
Mr Lian advises that "pay-how- you-drive" policies offer many benefits and cater to a wider group of drivers. They include those who drive relatively smoothly and who want to be in better control of how they drive and get instant feedback and driving tips.
In the case of UMax, it also provides the location of the vehicle, notifies you if it is driven out of Singapore and offers immediate roadside assistance with the touch of an app.
On the other hand, a plan based on how much you drive or “pay-as-you-drive" draws interest from people who do not drive often or spend relatively less time on the road.
Unlike off-peak plans, "pay-as-you-drive" policies allow you to drive during peak hours, as long as your total mileage in a year does not exceed the stated amount.
Another factor to consider is the cost of joining a usage-based motor insurance scheme.
Mr Bill O'Connell, vice-president of motor insurance at Income, notes that some usage-based products may require customers to pay upfront for the cost of the device to be fitted into their car. So check if a scheme has any upfront costs, if it will inconvenience you and if it can reward you for "good usage" such as low mileage and good driving behaviour, he advises.
While price is important when choosing a motor insurance policy, Mr Bucha says it should not be the only consideration. Motorists should look for a reputable insurer that acts as a long-term partner to not only help make road journeys safer, but also offer versatile technological solutions for usage-based insurance. He adds that a purely app-based solution offers greater flexibility and comes at little or no extra cost.
Drivers should also consider policies that offer maximum flexibility and convenience in the event of accidents, 24-hour service for emergency and claims assistance, comprehensive protection for repairs and personal accident cover for both driver and passengers.
AIG also offers benefits such as maintaining your no-claim discount for claims arising from floods or windstorms.
Discounts for safe drivers On the Go
AIG Asia Pacific Insurance's AIG On the Go is an intelligent-driving mobile application that rates a driver's performance every time he gets behind the wheel.
It measures performance against a range of factors, including acceleration, braking, cornering and speed. The app is available at no charge to AIG motor insurance policyholders.
Mr Manik Bucha, head of individual personal insurance at AIG Asia Pacific Insurance, says this differs from traditional insurance by enabling motorists to influence their own premiums by improving their driving behaviour.
Safe drivers with high scores - including new and existing AIG customers - will be rewarded with discounts of up to 15 per cent off their annual car insurance premiums.
The safer the driver, the bigger the savings, so AIG On the Go encourages policyholders to stay safe on the roads and save on their premiums at the same time.
Overall, user-based insurance using technology such as the AIG On the Go app helps to significantly reduce risk on the roads as drivers are incentivised to drive safely, and at the same time, it enables insurers to offer better premium pricing for customers, says Mr Bucha.
Around 25 per cent of AIG On the Go users have qualified for discounts on motor premiums. The app has recorded around 89,000 trips totalling one million kilometres since its launch in March.
DirectAsia's policy is based on trust
DirectAsia Insurance Singapore (DirectAsia) has been offering a Low Mileage option for five years.
This is how it works. Motorists who drive fewer than 8,000km a year save around 20 per cent on insurance premiums, while customers who do not drive their cars for work or use them only on weekends will receive discounts ranging from 15 per cent to 20 per cent.
This means that customers only pay for what they really need, says its chief executive, Mr Bob Thaker.
This proposition does not require any technology: You simply declare your usage or mileage, which can lead to a better price.
However, be aware that this form of usage-based insurance is based on trust. If motorists misdeclare their usage, a claim may not be paid and, in extreme situations, the policy may be cancelled or voided.
Mr Thaker is confident that with more sophisticated data analytics, consumers can look forward to more tiered savings and discounts off motor insurance premiums.
DirectAsia recently introduced a first-in-the-market "NCD60 tier". This rewards the safest drivers, those who have been claim-free for 10 years, with another 10 per cent discount over the no-claim discount of 50 per cent.
Mr Thaker notes that some of the usage-based solutions require customers to pay for the technology or install it themselves.
"It is also worth noting that technology is not foolproof and is not 100 per cent accurate," he adds.
Etiqa plan halves premium upfront
Maybank unit Etiqa Insurance has launched a pay-per-kilometre plan that offers private car drivers 50 per cent premium savings upfront - in addition to the no-claim discount - while enjoying the same comprehensive coverage.
Etiqa Insurance chief executive Sue Chi Kong says the substantial upfront savings are the most prominent advantage of usage-based insurance.
"It features a fairer pricing model, especially for low- mileage or infrequent drivers with no compromise to the insurance coverage," he adds.
"Unlike other insurers, Etiqa grants the upfront 50 per cent discount with no prerequisites and pre-submission of historical driving data required, making the process fuss-free and convenient for drivers."
Its model is based on quarterly billing rather than the traditional annual basis.
A driver is given a pre-set mileage of 1,500km per quarter. If the mileage for each quarter is within 1,500km, no additional charges will be imposed. If the driver exceeds the limit, he is billed based on the exceeded mileage at a rate of as low as six cents per km.
Etiqa guarantees that even with the top-up, the total premium will be less than the standard premium under a traditional car policy, which in this sample case is $800.
Etiqa's ePROTECT sMiles operates based on a simple bluetooth connection, so no device needs to be installed. It measures a driver's travelled distance via a telematics app and provides driving tips afterwards. A small bluetooth beacon device is provided.
MSIG offers control over damage excess
MSIG Insurance launched UMax in June after a successful six-month pilot study last year.
It found that 85 per cent of drivers who participated agreed that the use of telematics had encouraged them to drive better.
Drivers who sign up for UMax will get a telematics device installed for free to record driving data. A rebate of up to $150 is given once the device is in place. Each journey is assessed and given a score based on the distance, speed and driving style, such as cornering, acceleration and braking.
Under UMax, drivers have better control over their excess after the first 60-day period during which their data will be assessed for their driving style.
In the event of an accident, drivers can reduce their damage excess by half if they had achieved a driving score within the "yellow" band in the 30-day period before the accident. A complete waiver of the excess is granted if the score is within the "green" band.
MSIG uses a plug-in telematics device to track driving behaviour while other schemes typically use mobile phone-based telematics. Plug-in hardware provides more accurate feedback of driving behaviour and is considered a more precise barometer than mobile apps, says MSIG.
Mobile phone-based telematics software relies on built-in smartphone sensors, which are not designed with vehicle telematics applications in mind and cannot produce the same level of data accuracy as a plug-in device.
Flexibility and savings with Income
NTUC Income started offering FlexiMileage and Drive Master from last October. The schemes let motor insurance customers influence their premiums either based on the annual kilometres travelled or on their driving behaviour.
This is designed for private car owners who drive less than 9,000km a year and consent to have a telematics device installed. Low-mileage drivers get up to 35 per cent off their motor premiums if they clock less than 5,000km a year or 20 per cent off if they drive between 5,000 and 9,000km.
Mr Bill O'Connell, Income vice-president of motor insurance, says: "This scheme enables drivers to save more on their insurance premium because they spend less time on the road."
INCOME'S DRIVE MASTER
Designed to reward drivers for good driving behaviour, Drive Master allows individuals to be more aware of their driving habits through feedback from a smartphone application that automatically tracks and assesses behaviour on each trip.
It is based on four criteria - driving speed, manoeuvres, drive time and mileage. Drivers are given a cumulative score out of 100; those who meet the minimum score of 70 get a discount of up to 20 per cent off motor insurance premiums.
Open to all private car owners, the two schemes are free for Income motor policyholders. It has more than 2,500 users of the Drive Master application and over 300 under FlexiMileage.
Correction note: This story was edited for clarity.