Norwich Union has been experimenting with Pay-As-You-Drive insurance for a little while now, and has now made this service generally available to UK drivers, in association with technology company TrafficMaster, which provides the satellite navigation devices. [Norwich Union website, TrafficMaster website, BBC News report]
PAYD is an interesting application of the concept of differentiated context-aware services. Drivers pay a variable amount for car insurance, depending on the identity of the driver (under 23s pay more than older drivers) and the context (daytime versus nighttime, motorway versus town) as well as the number of miles driven.
This kind of differentiated service not only reduces the cost of insurance for some drivers, but also allows the driver a greater level of control over the insurance bill - by driving less. PAYD may also have a beneficial effect on road congestion and pollution.
However, although Norwich Union has evidently gone to some trouble to explain and manage the differences between regular insurance and PAYD, drivers adopting this kind of insurance will have to deal with some new complications, and I think we can expect the scheme to evolve further. For example, the arrangements for driving outside the UK seem unsatisfactory, and we may perhaps expect the emergence of the equivalent of "roaming charges" as insurers in other countries adopt similar or interoperable schemes.
Norwich Union has also gone to some trouble to deal with some of the security and privacy concerns of the scheme. The in-car device itself contains no data that can identify the driver or the vehicle. The data are encrypted for transmission, and then deleted from the in-car device. Not bad, although probably not perfect. (I haven't done a detailed analysis.)
However, the privacy issues are unlikely to deter many consumers. Context-aware services often involve some voluntary trade-off between privacy and consumer value. The consumer grants the service provider access to some personal information (such as consumption patterns), and gets some value in return (such as more precisely targetted special offers). PAYD is no different in that respect from any other scheme that permits the service provider (retailer, airline, credit card) to collect and process large quantities of consumer data.
It is going to be interesting to see the popularity of this kind of scheme, and the willingness of consumers to accept some level of complexity and strangeness, if they are convinced that this will give them a more cost-effective and (at least partially) user-controlled service.
Pay As You Drive 2 (June 2008)
Pay As You Drive 3 (June 2009)