In India, usage-based car insurance can link own-damage cover or pricing to how much a car is driven (Pay-As-You-Drive, or PAYD) or how it is driven (Pay-How-You-Drive, or PHYD). Telematics may supply usage or driving data for underwriting, while AI may also assist with claim assessments. Those are distinct uses: available evidence does not show that every insurer uses AI to calculate every PAYD premium. Third-party liability insurance remains mandatory for vehicles on public roads; compare the actual policy terms, not just a promised saving.
What PAYD and PHYD mean
PAYD refers to an approach that links cover or pricing to how much a vehicle is used. PHYD can take driving behaviour into account. They are approaches to motor own-damage products, not a single standard policy with one mileage limit or scoring formula.
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IRDAI working-group material discusses PAYD and PHYD as products insurers should consider based on data gathered, and recommends telematics for motor insurance. This is regulatory context, not evidence of a new universal rule, a mandated scoring method, or identical offerings across insurers. IRDAI working-group material
Where telematics and AI fit
Telematics can provide underwriting signals
Telematics is a way of gathering information about vehicle use or driving. Depending on the system, possible signals include mileage, time of day, location, acceleration, braking and cornering. Data may come through an app, a connected vehicle system or a device; not every product collects every signal. A US insurance-industry explainer describes these possible channels and signals, but it is general technical background, not a statement of Indian law or any particular Indian insurer’s practices. NAIC: Usage-Based Insurance
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AI-assisted claims are a separate use
Telematics and risk models can inform underwriting or pricing; AI and image analytics can also assist claims workflows. These should not be conflated. A Ministry of Finance release published by the Press Information Bureau 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. It does not say AI makes every final claim decision, replaces all human review, or calculates every usage-based premium. Ministry of Finance / PIB release, 16 December 2025
What Indian rules and an insurer example establish
IRDAI’s motor-insurance policyholder guidance says third-party liability insurance is mandatory for vehicles plying on public roads in India. Own-damage protection is separate additional cover. An own-damage product with usage-based terms does not remove the need to understand the liability cover on the policy. IRDAI also says own-damage premium rates are set by individual insurers after filing rates with the regulator. IRDAI motor-insurance policyholder guidance
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One current named example is ICICI Lombard. In its FY2025–26 ESG report, the company names IL Drive Smart, Pay-As-You-Use (PAYU) and Pay-How-You-Drive (PHYD), and says vehicle usage, driving behaviour and historical data are among its underwriting risk parameters. The report describes the company’s programs; it does not establish that every policyholder or policy qualifies, or specify a universal mileage band or guaranteed saving. Check the insurer’s current policy wording and availability for the product you are considering. ICICI Lombard FY2025–26 ESG report
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How to compare a usage-based policy
IRDAI advises consumers to compare premium alongside deductibles, coverage and IDV (insured declared value): a lower premium can come with a higher deductible, less cover or a lower IDV. For a usage-based option, verify the specific terms in the current schedule and policy wording rather than assuming a mileage cap, discount or claim consequence applies.
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- Separate required and optional cover. Confirm the third-party liability cover and identify what own-damage protection the quote includes.
- Compare what the premium buys. Check IDV, deductibles, coverage limits and exclusions alongside the quoted price.
- Find the usage definition. Look for the stated mileage limit or usage tier, how it is measured, and what the policy says happens if actual use differs from the selected level.
- Ask about data collection. Confirm which signals are collected, through what channel, and how the insurer says they affect underwriting or pricing. A product may collect only a subset of possible telematics data.
- Check claim conditions. Read the conditions and exclusions that apply to claims, including any terms connected to use or data-sharing.
- Understand claim assessment. Ask how the insurer explains any assessment, deductions, surveyor involvement and settlement decision.
The 2025 PIB release describes the 2024 policyholder-interest regulations as requiring insurers to have board-approved claim-settlement policies, disclose surveyor or loss-assessor roles and appointment details, and make deductions and settlements transparent, reasonable and supported by documentary explanations. If an assessment is app-based, ask how the insurer communicates its basis and how to raise questions about the settlement.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What the complaint figures do—and do not—show
The same PIB release reports that motor insurance accounted for 26.18% of complaints in FY 2023–24 and 24.8% in FY 2024–25, according to IRDAI. It also reports 10,156 motor-insurance complaints received by the Insurance Ombudsman and 9,943 disposed during FY 2022–23 through FY 2024–25. “Disposed” includes matters awarded, withdrawn and found non-entertainable; the remainder were still under process when reported. These are complaint figures, not claim rejection rates or measures of AI accuracy.
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