Pay-as-you-go car insurance: The pros and cons

Pay-as-you-go car insurance is becoming an increasingly popular option, but who could benefit from such policies?

For many people, car insurance is a large expense, which can be frustrating if you only use your car to pop to the shops each weekend. In addition, many drivers considered to be in high-risk groups get stung with sky high premiums, despite only using their car infrequently.

In order to tackle this issue, a number of insurers have started offering pay-as-you-go car insurance, which allows drivers to alter the amount they pay depending on how many miles they have travelled in their vehicle and how at-risk their car is deemed to be.

It works by fitting a small device, known as a 'black box', to people's cars, which measures how fast the car is going and how long it is being driven for. It sends this information back to the insurer, which will use it to work out people's premiums.

New technology can even assess people's driving styles by recording how fast they take corners and how aggressively they accelerate, meaning insurers can take this into account when working out the amount people should pay.

Normally, people are charged a set amount per year and allowed to drive a certain number of miles before being charged any extra. If they exceed this limit they will be able to 'buy' miles in 250-mile packages at a fixed rate. The price of these extra miles is likely to be based on people's age and driving experience.

Who will benefit?

The people who will benefit most from the pay-as-you-go system are likely to be drivers who are normally considered 'risky'. For example, men under the age of 25 normally have the highest premiums of any group due to the number of boy racers on the roads. However, many people in this demographic are very safe drivers who only use their cars once in a while. With a pay-as you-go policy, such motorists could find their premiums are dramatically lower.

People who tend to drive their cars out of peak hours could also find themselves saving cash, as many insurers offering pay-as-you-go schemes charge less for miles driven when the roads are not so busy, as accidents are less likely to occur during these times.

Other advantages

As well as potentially saving some people cash, pay-as-you-go car insurance could have positive implications for the environment. If people know that their premiums could go up if they exceed a certain number of miles, they are more likely to ditch their car in favour of public transport or the bus, leading to less pollution.

The fact that people will be encouraged to leave their cars in their driveways could also lead to a drop in the number of road accidents, as could the fact that when using their cars, people may be trying to drive as safely as possible to lower the sum they have to pay.

Meanwhile, the black box couples as a tracker meaning that stolen cars can be traced easily.

Potential pitfalls

Despite there being some obvious benefits to pay-as-you-go car insurance, there are also several downsides, with the largest one being that it could actually end up costing some people more if they exceed their set amount of miles. A number of factors, such as moving to a new job, could immediately impact on how many miles people travel each week and, although the cost of extra miles varies from insurer to insurer, it is likely to be pricey.

Another potential problem is the fact that the black box is unable differentiate between the various types of road. However, the likelihood of people having a crash could be dependent on whether they do most of their driving on motorways or in urban areas.

Finally, the devices are also unable to tell the difference between drivers, meaning that if various people are all using the same vehicle, they could all be charged at the same rate as the most expensive driver.