'Pay as you drive' may make a comeback

'Pay as you drive' insurance schemes may have been ahead of their time and may eventually make a come back, an analyst has said.

Although Norwich Union announced this week it is dropping its pioneering policy, consultancy Watson Wyatt believes the concept is a sound one and will likely be back in a few years.

"I wouldn't write off usage-based motor insurance entirely," said James Tanser, a Watson Wyatt's analyst. "This is a heavy blow for the pay-as-you-drive insurance concept, but it may eventually recover."

Norwich Union said it was taking its Pay As You Drive policy off the market because it could not get enough drivers to sign up. However, Royal & SunAlliance still offers usage-based insurance, called Drive Time.

According to Watson Wyatt, these policies are difficult to sell because of personal privacy issues and the fact that both the Norwich Union and RSA policies are comprehensive only, which may have put some young people off.

However, Watson Wyatt said the increasing technology put into cars combined with environmental issues and future government initiatives on road pricing could see usage-based insurance becoming more acceptable and attractive to drivers.

"GPS units are increasingly fitted as standard to vehicles, and some companies have started to include panic buttons and concierge services linked to these units," said Mr Tanser.

"Car manufacturers are also looking further to increase their service offerings, for example by automatically calling emergency services following an airbag deployment.

"Including car insurance in this type of offering may look like a small step, and so such developments may create an opportunity in the future to combine these technologies and relaunch the pay-as-you-drive insurance concept."

A Norwich Union spokesperson said the company could relaunch the policy in the future, and the reason it did not attract enough customers was because it was "ahead of its time".

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