NU lauches pay-as-you-drive insurance policy

Norwich Union’s new pay-as-you-drive insurance policy could bring cheaper premiums, but business editor Chris Starkie asks if it could lead to an erosion of civil liberties

It has been three years in the making, but Norwich Union has finally launched its much trumpeted pay-as-you-drive insurance product. It claims to radically change the way consumers pay for their motor insurance, offering greater control, flexibility and choice.

Instead of a flat rate no matter how much you use your car or where you drive, motorists will pay according to where and when they drive.

NU has likened its pay-as-you-drive policy to the pay-as-you-go revolution which has altered the mobile phone market over the past few years.

It believes motorists want to have more influence over the insurance policy they are buying, and need a more flexible product.

The insurer's own market research has revealed that more than two thirds of the public would consider taking out pay-as- you-drive insurance.

If the mobile phone market is anything to go by, where 40pc of the public's mobiles are pay as you go, NU will have a huge audience.

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The trials have produced some impressive results, suggesting the new policies should prove a hit amongst consumers, especially younger motorists and people who drive few miles or mainly stick to motorways or dual carriageways.

The policy for young drivers makes it more expensive to travel at night than during the day. That is because young drivers are 10 times more likely to have an accident at night and 56pc more likely to suffer an injury between 1am and 5am, according to government data.

As a result of making it more expensive to drive at night, accidents fell by 20pc amongst the 1,500 young motorists who took part in the pay-as-you-drive trial.

NU also estimates that young drivers could save between 30pc and 50pc on the premiums by signing up to the policy and choosing to drive less at night.

The second policy is aimed at motorists aged between 24 and 65. Here the people who will benefit most are those who drive less than 8,000 miles a year and stick to motorways and dual carriageways.

Motorways and dual carriageways are priced more cheaply as they are statistically far safer. Motorway driving for example is up to 10 times safer than driving on low speed urban roads, and driving in a morning weekday rush hour is 50pc more likely to result in an accident than driving at weekends.

More pay as you drive policies are expected to follow - with one focused on drivers who clock up thousands of miles every year, but mainly stick to motorways having been suggested.

NU estimates that two thirds of motorists could benefit from the introduction of pay-as-you-drive, but inevitably there will be losers. If for example you drive more than 10,000 miles a year, mainly in the centres of towns and cities, then your premium is likely to go up rather than down.

But concerns have been raised about the black boxes fitted to every car. The technology works by transmitting data captured by the black box back to NU's computer system. The computer system then generates a bill, based on the use of the vehicle.

Civil liberties groups are concerned that the black boxes may be used to collect potentially incriminating data against drivers, such as speeding fines or even to establish a national road pricing network.

The fear is that once installed, the black boxes could be used by different agencies for a range of other purposes.

NU is remaining coy about road pricing and speeding fines, but is keen to point out the benefits to consumers of the tracking device in the box.

In the trial, several stolen cars which had been fitted with the boxes were recovered thanks to its tracking capabilities, saving NU and the motorists several thousand pounds.

For all the hi-tech wizardry of the black boxes, NU knows what motorists are most interested in is price, and finding the most competitive quote.

Consumer groups argue that if NU gets that right, they may well have a winning product on their hands.

PAY AS YOU DRIVE: THE FACTS

t Motorists could save hundreds of pounds on their premiums with the launch of pay-as-you-drive insurance by Norwich Union.

t Under the revolutionary new scheme, drivers pay for every mile they travel, with rates varying according to the time of day and the type of road.

t A black box fitted to the vehicle records every journey made, with NU then sending customers itemised bills. NU has likened the introduction of the new product to the development of pay-as-you-go mobile phone tariffs and believes there is a huge market to be captured.

t The insurance giant is today introducing two new policies - one aimed at 18 to 23 year old motorists and the other for 24 to 65-year-olds - following a two-year trial of the technology with 5,000 volunteers.

t The 18 to 23-year-olds will have to pay £1 a mile for travel between 11pm and 6am, which are peak hours for accidents, but just 5p a mile at all other times.

t NU believes the policy will offer cheaper premiums for younger motorists, who are traditionally regarded as a high risk by insurance companies.

t The insurer's second pay-as-you-drive policy is aimed at motorists who don't use their car very often - typically driving less than 8,000 miles a year. Under this policy drivers aged 24 to 65 will pay as little as 1p a mile for off-peak motorway driving, rising to as much as 12p a mile on some urban roads during peak hours.

t Motorways are cheapest as they are the safest roads to drive on, with urban roads statistically the most dangerous.

t Customers who sign up will also have to pay a one-off fee of £50 towards the cost of the black box, which will be fitted in the vehicle by NU's sister company RAC Auto Windscreens.

t Sean Egan, director of information technology at NU Insurance, said: “We have spent the past two years testing the technology and ensuring that it works. We believe there is a big market for this product. I believe that quite a large proportion of customers are going to want it in the future. Consumers are increasingly wanting ways of managing what they spend and by choosing when to drive and when not to they will be able to save money. Our trials have shown that there are some real savings to be made by customers. Many people saved around a third on their policy.”

t As well as recording journeys, the black box acts as a tracking device and can help motorists recover their vehicle if it is stolen.

t An emergency button has also been fitted onto the box which can be used to summon help if the car breaks down.

t Civil liberties groups are concerned the black boxes may be used to collect evidence against drivers, such as breaches of speed limits.

t There are also fears the technology could be used by the Government to introduce a road pricing network.

t NU is aiming to sign up around 20,000 customers by the end of this year, although it says it has contingency plans in place if far more people want the product.

t Mr Egan said: “We are launching the product nationally, but are being cautious about how heavily we market it. We are confident we can deal with demand.”