Risk-based premium as a concept is followed in several countries where insurance premium is dependent on individual behaviour.
If you are among those who religiously wear your fitness bands everyday and closely monitor the number of steps taken, you could be offered a discount in your insurance premiums in the near future, if insurers’ proposal to IRDAI is considered. The Insurance Regulatory and Development Authority of India (IRDAI) has constituted a working group on innovations in use of wearable and/or portable devices in insurance, wherein companies have suggested that usage of these devices should offer benefits to policyholders.
“Currently, we put all policyholders under one bracket irrespective of what their fitness levels are. Hence, we have suggested that individual health metrics also be measured and differential pricing be offered,” said the chief executive of a large life insurance company.
At present, mortality tables are used by life insurance companies to look at what premium will be charged from each age bracket of customers. General insurers either advise a complete medical examination or rely on the disclosures given by prospective policyholders. In both the segments, the older a person is, the higher is the premium.
The regulator has said in the context of both health insurance and life insurance, wearable devices could be used to measure personal fitness, incorporate a healthy lifestyle, among others. When it comes to motor insurance, recently the IRDAI had put up a discussion paper on telematics in motor insurance.
“Innovation is encouraged, but policyholder interests and how exactly the products will be designed need to be looked into. Proper data will have to be analysed to arrive at a premium,” said a senior official.
The working group will look at how technological advancements, particularly wearable and portable devices may be treated from the point of view of risk improvement, risk assessment and use/distribution of such devices as part of policy design.
Further, it will also understand the practices of other jurisdictions in this area and suggest the policy framework that needs to be put in place keeping in view the interests of policyholders.Globally, pay-per-use and risk-based premiums are a norm in several markets. Here, the premium depends on individual behaviour, be it while driving a car, or healthy practices like proper diet and exercise.