In 2007 the first national car insurer released a new form of car insurance that could save drivers hundreds of pounds if they travel under 6,000 miles a year. Up till then, finding the best car insurance deal for those low mileage drivers was a laborious task of searching brokers and insurers. Often the cheapest deals meant compromising on benefits such as courtesy cars and additional drivers. This revolutionary new way of insuring cars claims to make it simple and easy to get a good deal. The question now, on all drivers lips should be; what is this new deal and now how does it work?

The product is a ‘Pay As You Drive' scheme which uses new and innovative technology to benefit both the insurer and the customer. Traditional insurance polices usually charge the driver a fixed premium based on a number of factors. These factors include the estimated annual mileage, the type of car, and whether the car is used for social / domestic or business purposes. In addition, the driver's postcode and location where they park their car, be it a garage, driveway or on the side of the road also factor. Added to this is a calculated risk of how likely the driver is to have an accident and cost the insurer money. Previous accidents and the driver's no claims history are the obvious measures of this, but few people know that the amount you drive and the type of driving you do are also considered. When all these factors have been taken into consideration, and put through a series of number crunching exercises you are finally left with a quote to insure your car for the year.

The Pay As You Drive product aims to change all of this, by linking your premium directly to your driving. Instead of getting a fixed premium you receive a completely personalised premium every month. This personalised premium will depend on not only how much you have driven your car that month, but also when and where you have been driving it. For example if you decided to spend a week motoring up and down the country, your premium will be higher than the one week that your car was left idle at home while you went on holiday. The hours that you drive, the roads you drive on plus the amount of mileage completed each month will all factor in the overall monthly bill.

How does Pay As You Drive insurance work?

When you sign up for the insurance plan, a little black box shaped like a CD case is fitted inside your car. The black box contains a GPS tracker which records when, where and how much you drive. It can even record the time of day you are driving and the types of roads you are travelling on. This gets fed back to the insurer who adjusts your monthly premium accordingly. You then receive an itemised bill detailing your driving habits plus a flat fee to cover standard insurance charges for third party accidents, fire and theft. This flat fee remains the same from month to month with the only variable being the charge for how much you have driven your car.

How much will you pay?

The cost structure for the flat fee is split by age group. As per traditional insurers, younger drivers aged 18-23 can expect to pay considerably more than drivers who are aged 24 and over. The flat fee for third party, fire and theft cover averages at around £11 per month and then the additional mileage is charged out at between 0.41pence and 4.63 pence per mile depending on the time of day and the roads which are being driven. It is estimated that if you are a low mileage driver, driving less than 6000 miles per year you could stand to save 30% off your old insurance premium with the Pay As You Drive scheme. This is a substantial saving which anyone would be happy with.

Since its launch, the Pay As You Drive scheme has proved to be very popular. This is despite initial opinion polls, which suggested that the idea of Pay As You Drive insurance was felt by some drivers to be very “Big Brother” and some people objected to the amount of data being collected about your driving habits. Concerns were also raised that people may feel that have to reduce the amount they are driving their cars in order to keep their premiums low. This perhaps would not be a bad thing in an age when we all should be considering our carbon footprint. None of this scepticism however has shown through in the sales figures of the insurer who is offering the scheme. They found themselves so oversubscribed, that they had to suspend taking new applications as their supply of ‘Black Boxes' could not meet the demand. With production increased the insurer is now able to welcome all those who wish to apply and see if they can save money on car insurance.