AA investigating PAYD technology and hoping to pilot a scheme by next year.

The AA may pilot a pay-as-you-drive (PAYD) scheme next year in a bid to keep the technology alive following Norwich Union’s (NU) recent decision to put its scheme on ice.

The AA, which has one million motor insurance policyholders, has been investigating PAYD and the technology behind it, called telematics.

It believes that such schemes are particularly beneficial for younger drivers, who may drive infrequently but face high premiums.

Products and actuarial director Simon Douglas said: “Norwich Union has pulled out, we need to understand why they felt it wouldn’t work. But in principle I think there’s a lot to be said for telematics solutions in vehicles.

“I can’t help thinking telematics will be like water meters in the home. It won’t be that everybody has one, and not everyone will want to use one, but for many people it will be a good way to manage the cost of driving, as it is to manage the cost of water usage. I’m keen to understand how it might work and I would be very surprised if we don’t pilot something next year.”

Douglas added that telematics should be used for other functions alongside insurance.

Norwich Union announced that it was to withdraw its PAYD insurance policy from the market in June, less then two years after its launch. The insurer found that far fewer than its target 100,000 customers signed up to the policy, and car manufacturers were slower to take up the technology than expected. An NU spokesman said that the suspension of the policy was temporary, and that it will monitor the market and consider re-entering “when it makes more sense”.

With Norwich Union’s withdrawal from the market, RSA is the only insurer currently using telematics technology, though its policy offers young drivers discounts for refraining from night time driving, rather than charging them by the mile. RSA has said the scheme has been popular and reiterated its commitment to telematics.

Telematics uses satellite technology to track a car’s movements via a black box.

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