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Pay as you go or ‘pay as you drive’ car insurance allows you to pay for the miles that you actually drive. Using telematics technology to monitor your mileage more accurately, you receive a premium based on the exact distance you cover.
Typically, car insurance premiums are based on estimates about the driver’s age, address, vehicle type and driving experience to determine the likelihood of being involved in an accident and making a claim. This means that some demographics, such as young drivers, can fall victim to very high insurance premiums. However, with the use of technology to measure your mileage, you have more flexibility and can significantly lower the cost of your insurance if you do less driving that expected.
Pay as your drive car insurance (PAYD) starts with adding a little black box to your dashboard which is the size of a smart phone. Once it has been fitted, it will use GPS to track your mileage and also your speed, acceleration, braking and cornering. The use of this box is also known as telematics insurance.
The information recorded is made available to your insurer and you can also check this on your computer, phone or app. It follows the idea that the less miles you do, the less likely you are going to be involved in an accident and therefore the cheaper your car insurance will be.
Every pay as you go insurer will charge different amounts per mile and give you a certain number of miles you can do each year. So if you go below the estimated mileage, the extra miles can be credited and rolled over until next year. If you go over the predicted number of miles, you can simply ‘top up’ in bundles of miles.
Individual motorists and those using company cars can potentially make a huge saving with this type of insurance. With company cars doing an average of 19,500 miles per year and privately owned cars driving 7,500 miles per year (Gov.uk), there should be a way to reward those that do less mileage or drive more carefully. Perhaps it is a new job, address or you are working more from home, there are several reasons why your mileage this year might be different to the one from last year. So instead of your insurer charging you a premium based on last year’s mileage, you can save hundreds of pounds by proving that you actually drove less.
The black box also monitors the time of day that you drive. So if you drive in the evenings, early mornings or middle of the day that is away from rush hour, you can also receive a discount from your insurer for driving off peak.
A real advantage is that the technology also tracks the driver behavior and quality of your driving. So if the reports show your insurer that you are a slow and safer driver, this will result in a reduced premium. On the same note, telematics boxes have helped create safer drivers as motorists become more conscious once the equipment has been fitted. Studies have shown that the presence of a black box has helped reduce accidents by as much as 40% for new drivers.
Young drivers under the age of 25 and those most likely to benefit from pay as you go car insurance. With little experience on the road, young drivers are associated as being high-risk drivers by insurers and will usually receive the more expensive premiums as a result.
However, simply because they are young does not mean that they necessarily pose any greater risk and that is where this type of insurance comes in handy. By fitting in the device that measures their distance and driving behavior, they can demonstrate to their insurers that they are safer and low-risk drivers. This insurance product has had huge success with young drivers with some able to save as much as 20% on their car insurance. (Source: The Telegraph)
Pay as your drive cover can also offer some more flexibility with young drivers. After all, they may not do the entire mileage that they are quoted for. Especially with busy term times, travelling and being at University, their vehicle may go several weeks or months without being used – so it makes sense to only pay insurance for the time that you use it.
For individual delivery drivers or companies with lots of couriers on their books, it makes sense to measure the mileage they do more accurately. Since delivery drivers are used to doing shift work and use a variety of vehicles, it is unfair to assume a one-size-fits-all insurance policy. Not only can individual couriers save hundreds of pounds per year but if you have a fleet of delivery drivers, more accurate mileage could potentially help you save thousands of pounds for your business.
Furthermore, the use of telematics can allow for more accuracy when fighting a claim. Since it monitors your speed and braking, the technology is able to provide insight as to whether a collision was your fault or not. For business owners facing liability, having this information can be vital to avoid legal action and losses.
It is noted that using pay as you go car insurance is not an instant way to cut the cost of your insurance. For instance, there is a small fee for adding the device to your vehicle. Of course, the potential savings can certainly outweigh the cost of installation.
However, if you have a lifestyle change that involves you driving greater distances or during peak time traffic, and you cannot cut back on your driving, your mileage will still be clocked by the machine - so you could end up making zero savings or even paying more than a traditional car insurance policy. Something like this might be out of your control such as a new job or living arrangement. So having a good think about your travel plans for the next year will certainly help decide if this is product is right for you.
A further piece of information is that the devices are unable to tell the difference between drivers. So if you have numerous drivers on the vehicle, the data for driver behaviour can be skewed and having one bad driver could have an impact on the premium of everyone else.
Other suitable ways to reduce the cost of your insurance include adding security features to your car such as keeping it in a garage overnight or adding an immobilizer. For young drivers, they can also consider doing extra courses which will be recognized by insurers to lower premiums. Plus, they can consider adding a more experienced driver to their car and share the driving to save money.