Norwich Union's Pay As You Drive insurance policy may simply have been ahead of its time. Government action on road pricing could encourage this sort of motor insurance to make a come back in a few years, according to leading global consultants Watson Wyatt.

Norwich Union announced this week that it has decided to stop offering its Pay As You Drive insurance policy, saying that the policy did not achieve critical mass and it has been suspended indefinitely. This leaves only RSA's Drive Time policy, which targets under 25s, offering usage-based insurance.

"I wouldn't write off usage-based motor insurance entirely," said James Tanser, a leading authority on motor personal lines business in Watson Wyatt's Insurance and Financial Services practice. "This is a heavy blow for the pay-as-you-drive insurance concept, but it may eventually recover."

Quite apart from the personal privacy issues, the motor insurance offered by these policies was probably always a hard sell, according to Watson Wyatt. Both the Norwich Union and RSA policies were comprehensive only, and this probably reduced the incentive for young drivers to sign up for their policies. But Watson Wyatt believes that the increasing technology put into cars combined with environmental issues and future Government initiatives on road pricing could see usage-based insurance becoming more acceptable and attractive to drivers.

"GPS units are increasingly fitted as standard to vehicles, and some companies have started to include panic buttons and concierge services linked to these units," said James Tanser. "Car manufacturers are also looking further to increase their service offerings, for example by automatically calling emergency services following an airbag deployment. Including car insurance in this type of offering may look like a small step, and so such developments may create an opportunity in the future to combine these technologies and relaunch the pay-as-you-drive insurance concept."

"Of course, what may be required is a major change in the way people think about their cars and their privacy. If the UK government seeks to reduce our carbon emissions by sophisticated road pricing, charging by the time of day, the level of congestion and the type of road, then interest may again revive. Also, the technology still has a future for fleet cover, where the presence of Big Brother in the cab may be an attractive option."

In terms of insurance, where the UK leads, the rest of the world often follows, according to Watson Wyatt. "Over the last few years we have spoken to a number of insurance companies around the world about the possibility of launching their own version of this product," said James Tanser. "A number of trial schemes are either running or about to start, and they represent a significant outlay in technology and time from the sponsoring insurers.

"Given the news from Norwich Union, it is likely that interest will, for now, fall off rapidly. But the same technology and road pricing issues as in the UK are on the agenda elsewhere and may mean that usage-based motor insurance may eventually make a come back."

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