Surveillance fears force Norwich to scrap 'pay as you drive' car policies

Britain's biggest insurer Norwich Union has withdrawn one of its flagship car insurance policies less than two years after its launch.

The "Pay As You Drive" scheme used satellite technology to track journeys via a black box installed in customers' cars. The data was used to offer cheaper premiums to drivers who avoided high-risk periods such as rush-hour and late at night.

Norwich Union said too few customers had signed up for the policy, blaming a slow take-up rate of the technology among car-makers. "We are pausing Pay As You Drive and transferring existing policyholders on to more traditional products," said a spokesman. "The indication we had from the motor industry was that they would readily adopt telemics boxes. That would have reduced our costs. But it hasn't happened."

It seems the provider also overestimated the response from consumers. In 2006, when it was launched, Norwich Union had hoped that 100,000 boxes would be installed. Today, that number is understood to be about 10,000. Concerns over the tracking capabilities were a sticking point as cars with the system were constantly tracked via satellite. Questions were raised over invasion of privacy and the use of the data generated from monitoring the movements of a registered vehicle.

"The big-brother element of Pay As You Drive, particularly the ability to see how fast someone drives, put a lot of potential policyholders off," said Peter Gerrard, the head of insurance research at the price comparison site Moneysupermarket.com.

The policy charged drivers between 5p and £1 per mile depending on when and where they drove, particularly during rush-hour or at night. This made it more popular with younger and occasional drivers.

But the insurer admitted that policyholders may have to pay more for insurance as a result of the move. "The nature of the Pay As You Drive policy means it is not possible to match the premiums policyholders have enjoyed. However, the information we have about usage will us help find the most appropriate alternative policy," the spokesman said.

Norwich Union's withdrawal from the pay-as-you-drive insurance market will also have a knock-on effect on Government plans for road-pricing systems, which have unofficially relied on insurance companies to road-test tracking schemes.

Only More Than still offers a special monitoring policy for 18- to 25-year-olds, who are allowed to drive only between 6am and 11pm.