The Pay by Mile policy has been designed for drivers who cover less than 6,000 miles a year, and is described by the firm as a “subscription” model of car insurance.

Drivers pay a per-mile cost for the miles they actually drive ‒ called the mileage price ‒ as well as a set monthly fee to cover their vehicle while it’s not on the move, which is called the parked price. There is also an initial £50 activation fee.

There is a Pay by Mile app, which means that motorists can track how many miles they’ve covered and how much their monthly bill is likely to be. There are no fees for changing vehicles or address, and there are no tie ins so drivers can cancel straight away if they decide the policy is no longer suitable for them or they want to sell their car.

Drivers who sign up for the policy will be supplied with a ‘drive tag’. This can be attached to the windscreen, and the tag will detect when the car is in use and how many miles have been covered. No other driving-related data is collected. This data is then used to calculate the bill at the end of the month.

All Pay by Mile policies are fully comprehensive.

Mark Godfrey, managing director of RAC Insurance, said that the car insurance market has been “ripe for a shake-up” for some time, and argued that Pay by Mile was a “pioneering” product for those who don’t cover large mileages.

He continued: “With a standard car insurance policy, drivers are expected to estimate how many miles they expect to drive from the outset, whether or not they cover this distance during the policy year or not. For people who don’t drive very regularly or only ever go short distances, this could result in a premium that seems overly expensive.”

Driving fewer miles

The pandemic has had a significant impact on our driving habits. The various national and local lockdowns forced people to stay at home, except in certain situations, and that had an inevitable knock-on effect on the number of miles covered.

A study by Direct Line at the end of 2020 suggested that more than half of drivers (55%) were driving fewer miles than before the first lockdown was introduced. It pointed out that the average estimated mileage on a car insurance policy is 8,000 miles, which works out at 667 miles per month, yet in October the average motorist covered just 198 miles.

Godfrey said: “The impact of the coronavirus pandemic on driving patterns means it feels like this product has never been more relevant. So many of us are driving fewer miles now, which means we might well be frustrated at how much we’re having to pay for car insurance.”

Some insurers reacted to the reduced miles ‒ and therefore the reduced levels of risk ‒ as a result of the pandemic by handing drivers a partial refund on their policy costs. However, this was far from a universal approach, with only one in five drivers reporting receiving a refund.