Norwich Union has dropped its "pay-as-you-drive" motor insurance scheme – much heralded for bringing down the cost of motoring for those who used their cars less than average, and those who did not drive on busy roads or at night.

The scheme, which has been going only two years, was hailed as the perfect way for young drivers to gain experience on the road after passing their test without having to pay the sky-high insurance premiums typically charged to new drivers.

The idea was that because drivers who were able to restrict themselves to safer driving conditions and the times of day when they took to the road, they would have fewer accidents so premiums could be set lower.

Younger drivers paid around 5p per mile for their insurance outside rush hour, but the cost went up to £1 a mile if they drove late at night.

However, the company blamed a poor take-up rate for the decision to suspend the scheme, and insurance industry experts suspected that this was probably because drivers disliked the idea of the "spy-in-the-cab" technology, which tracked their every move by satellite in order to operate the charging mechanism.

Norwich Union is writing to policyholders to tell them of the change to their policies. It says that no one will be left without insurance, and those who opt to stay with Norwich Union will receive a discount on its standard insurance terms.

Industry experts say the withdrawal of the insurance scheme could prove a setback for the Government’s "pay as you drive" road-pricing proposals, which will use similar technology.

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