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Pay-as-you-drive (PAYD) car insurance links cover or pricing to how much a vehicle is used; pay-how-you-drive (PHYD) can also take driving behaviour into account. In India, telematics can supply data for underwriting or pricing, while AI may separately assist with claims assessment. These are distinct uses: the available evidence does not show that every insurer uses AI to calculate every PAYD premium, or that savings are guaranteed.
What PAYD and PHYD mean for Indian car owners
PAYD is an approach in which vehicle use—often expressed as distance or a usage tier—can affect insurance cover or pricing. PHYD can consider how the vehicle is driven as well as how much it is used. The exact definitions, eligibility, limits and consequences depend on the insurer’s current product wording.
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IRDAI working-group material discusses PAYD and PHYD as motor own-damage product concepts that insurers should consider based on data gathered, and recommends telematics. This is regulatory context, not a current universal formula, a mandate to offer a particular product, or evidence that every insurer uses the same scoring system. IRDAI’s working-group material should be read alongside current regulations and the policy wording for the product being considered.
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Telematics is the collection and transmission of information about a vehicle or its use. Depending on the system, possible signals include mileage, time of day, location, acceleration, braking and cornering. Data may come through a mobile app, a connected vehicle system or an in-car device. A particular policy may collect only a subset; the technology and data-sharing terms determine the detail.
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The National Association of Insurance Commissioners (NAIC) describes these possible usage-based insurance signals and collection channels in a general explainer. It is US-focused background, not a description of Indian law or a claim that every Indian insurer collects each signal. NAIC’s usage-based insurance explainer is useful for understanding the technology, but your insurer’s disclosures establish what applies to your policy.
Where a policy uses telematics, its data may feed underwriting or risk-based pricing. That does not establish that an AI model independently sets the premium: an insurer may use data and pricing models without disclosing that every calculation is AI-driven. Ask the insurer what information affects the quote and how it is used.
What current Indian insurer disclosures establish
ICICI Lombard’s FY2025–26 ESG report names IL Drive Smart, Pay-As-You-Use (PAYU) and Pay-How-You-Drive (PHYD). The company says vehicle usage, driving behaviour and historical data are among its underwriting risk parameters, and describes connecting real-time driving behaviour with pricing models. These are the company’s descriptions of its programs; they do not establish that every customer or policy is eligible, or specify a universal mileage band or guaranteed saving. Check the insurer’s current product availability, eligibility and policy wording before relying on a particular term. ICICI Lombard’s FY2025–26 ESG report.
AI in claims is a separate use from usage-based pricing
AI-assisted claims assessment concerns how a loss is evaluated after an incident; it is not the same as using telematics or risk models to price a policy. A Ministry of Finance release published by the Press Information Bureau (PIB) on 16 December 2025 says losses below ₹50,000 need not mandatorily be surveyed by a registered surveyor under the 2024 Master Circular, and reports that insurers use app-based AI-driven assessment for such cases. The release does not state how many claims use this process, give an error rate, or say AI alone makes every assessment or settlement decision. The PIB release on motor-insurance claims.
The same release describes the IRDAI (Protection of Policyholders’ Interests, Operations and Allied Matters of Insurers) Regulations, 2024. It says insurers must have board-approved claim-settlement policies, disclose surveyor or loss-assessor roles and appointment details to insured people, and make deductions and settlements transparent, reasonable and supported by documentary explanations. If an assessment or deduction is unclear, ask the insurer for the explanation and supporting documents.
What cover is required—and what remains your choice
Third-party liability insurance is mandatory for vehicles plying on public roads in India. Own-damage cover is separate protection for damage to your own vehicle; a usage-based own-damage option does not remove the need to understand the liability cover in your policy. IRDAI’s motor-insurance consumer guidance also explains that insurers set own-damage premium rates individually after filing rates with IRDAI. IRDAI’s motor-insurance policyholder guidance.
IRDAI advises consumers to compare more than the premium: deductibles, coverage and insured declared value (IDV) matter. A lower quote may come with a higher deductible, less cover or a lower IDV, so compare what the price buys rather than treating the headline premium as the whole decision.
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How to compare a usage-based policy before buying
- Separate the cover types. Confirm the third-party liability cover and identify whether the quote includes own-damage protection or is liability-only.
- Compare the insured value and cost-sharing. Check IDV, deductibles or excess, coverage limits and exclusions against another quote with comparable protection.
- Find the actual usage terms. In the current policy schedule and wording, look for how usage is defined, how it is measured, and any stated mileage cap or usage tier. Do not assume a limit or discount from the product name.
- Ask what data is collected. Confirm whether the insurer uses an app, connected-vehicle data or another device; which signals it collects; and whether those signals affect underwriting, pricing, or both.
- Check what happens when use differs from the selected terms. Ask how the policy treats driving beyond a declared or selected usage level, and read the conditions that apply when making a claim. These terms are product-specific; a universal consequence is not established.
- Understand claim assessment and deductions. Ask how surveyor involvement is handled, how an app-based assessment is explained, and how the insurer documents deductions or settlement decisions.
Use the insurer’s current policy wording and schedule to resolve these points; a marketing description alone may not provide the terms that govern cover.
What the complaint figures do—and do not—show
The 16 December 2025 PIB release reports that motor insurance accounted for 26.18% of complaints in FY 2023–24 and 24.8% in FY 2024–25, attributing those shares to IRDAI. It also reports 10,156 motor-insurance complaints received by the Insurance Ombudsman and 9,943 disposed between FY 2022–23 and FY 2024–25. “Disposed” includes matters awarded, withdrawn and found non-entertainable; the remaining matters were still under process when reported. These are complaint statistics, not claim rejection rates.
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