Over the past few years the taxi industry has undergone a complete transformation. This has, in part, been fuelled by the growth in popularity of apps such as Uber and GrabTaxi, both mobile apps which allow customers to hail a third party privately owned vehicle for use as a taxi. The growth of Uber and GrabTaxi has led to an increase in individuals utilising their vehicles as private hire vehicles (“PHV“), often on a part-time basis to supplement their normal income. These PHVs are similar to traditional taxis but are privately owned by individuals and can only be hailed using the smartphone app.
In Singapore, like in many other countries, car owners need to have insurance in order to drive. Any driver must be covered at least for personal injury to others. In addition, GrabTaxi and Uber both require their drivers to have commercial insurance, which is much more expensive, especially after Singapore’s General Insurance Association expressed concerns last October that a lot of drivers operate commercially without having a proper policy in place.
These changes in the taxi industry have created an opportunity for insurance companies to develop a new product aimed at the PHVs using peer-to-peer mobile technology. The first company to respond has been AXA who, in partnership with GrabTaxi, have created a first-of-its-kind Pay-As-You-Go policy (“AXA PAYG“), specifically designed for this market. The AXA PAYG policy allows drivers to pay per kilometre driven, saving drivers up to 30 per cent off commercial auto insurance base premiums. Launching first in Singapore, the regional partnership between GrabTaxi and AXA aims to roll out the AXA PAYG model to five other countries with GrabTaxi services in the near future. This is the second collaboration between GrabTaxi and AXA after the launch in November 2015 of a personal accident insurance scheme that covers GrabTaxi passengers for personal injury at no cost to the driver.
Traditionally, PHV drivers have been charged a fixed annual premium payable upfront at the start of the policy period, regardless of whether vehicles are driven for personal or GrabTaxi use. AXA PAYG drivers on the other hand pay a flat rate of 70 per cent of the base premium, and an additional S$0.06 per km driven on GrabTaxi rides, capping off at 100 per cent of their equivalent base premium. This means they will never pay more than their traditional commercial auto insurance premiums – drivers essentially only pay as they earn.
AXA PAYG will provide coverage for third party liability (including passengers) such as injury or death of a third party and also third party property damage.
Mr. Lim Kell Jay, Head of GrabTaxi Singapore said that “AXA PAYG will reduce cost barriers to entry for new PHV drivers and help to grow the supply pool to meet Singaporean commuters’ demand.”
The PAYG system is unlikely to benefit full-time drivers, who would likely end up paying the same as their normal premium. Rather, PAYG is expected to be favoured by part-time drivers, who are unlikely to cover sufficient distance to reach 100 per cent of the cost of the full premium, and will therefore make a saving. The PAYG model may also incentivise recruitment of new part-time drivers on this basis.
The impact of the AXA PAYG scheme is yet to be comprehensively assessed, having only recently been launched, but take-up amongst drivers has so far been strong. Innovations like this could have a profound impact on the insurance market as consumer habits evolve from the traditional customer-provider model to a hybrid market including more peer-to-peer services. Insurers would be well-advised to consider further peer-to-peer market tie-ups in order to obtain a commercial advantage with customers looking to supplement their income.
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