The RAC is launching a new, flexible monthly subscription-based car insurance product aimed at saving money for motorists who cover fewer than 6,000 miles a year.
Drivers are covering 20 per cent fewer miles than two decades ago, with this trend likely to continue following the coronavirus, meaning pay per mile policies are likely to become more popular.
Pay by Mile from RAC Car Insurance works by charging motorists an agreed per-mile cost for the miles they actually drive, called the mileage premium, in addition to a set monthly fee to cover their vehicle while it’s parked, known as the parked premium.
Therefore, motorists who drive relatively few miles, could make significant savings on their insurance.
The RAC is launching a new, flexible monthly subscription-based car insurance product
Users will pay an initial one-off £50 activation fee before paying a monthly premium that covers the vehicle for the time it’s parked.
This is made up of two parts, the parked premium, which is a set charge paid at the beginning of each month to insure the vehicle whilst it’s not being used, and then the mileage premium, a small per-mile charge for insuring the car while it’s being driven, which is paid at the end of each month.
The monthly parked premium starts at £14 per month but will vary depending on where the car is parked, the same as with a regular insurance policy.
There are no fees for amending a policy and customers are free to cancel at any time without being charged.
The RAC confirmed there is also no tracking of driver behaviour.
Customers just stick the Pay by Mile ‘drive tag’ to their windscreen, pair it with their smartphone and their miles are recorded.
At the end of each month, the customer pays for the miles they’ve driven which will be a clear ‘per mile’ price of as a little as 4p for every mile they actually drive.
To manage their account, drivers will have access to a Pay by Mile app which will help them keep track of miles driven and their monthly costs.
All Pay by Mile policies provide fully comprehensive insurance cover while a vehicle is being driven, and while it’s parked.
This DriveTag must be stuck to customers windscreens to record how many miles driven
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.
An example of how the Pay per Mile app looks for customers tracking their mileage
For people who don’t drive very regularly or only ever go short distances, this could result in a premium that seems overly expensive.
Mark Godfrey, managing director of RAC Insurance, said: ‘Car insurance is a market that’s been ripe for a shake-up for some time, so we’re thrilled to introduce a truly pioneering new product which is ideally suited to drivers who don’t do that many miles.
‘Pay by Mile from RAC Car Insurance offers something different.
‘The impact of the coronavirus pandemic on driving patterns means it feels like this product has never been more relevant.
‘With monthly, no-ties subscriptions now the norm for so many services we felt the time was right to bring this approach to car insurance – so our new product offers both flexibility and transparency.’
Policies are underwritten by Highway Insurance Company Limited, part of LV=, and the RAC has partnered with insurtech company Wrisk whose platform provides the technical foundation for the novel RAC Pay by Mile experience.
At present, there is only one other insurer who currently offers pay per mile car insurance policies, called By Miles.
It is an insurer that only offers pay per mile policies aimed at motorists who do fewer than 7,000 miles a year.
Customers can either plug in a small Miles Tracker, or newer cars can connect the firm directly with their car’s mileometer to find out how many miles they have driven.
However, it is a ‘pay as you drive’ and not ‘pay how you drive’ policy meaning it doesn’t use the way customers drive to price their premium, just the distance they cover.
Benefits include capped mileage discounts, so customers can drive as much or little as they like, but never pay for more than 150 miles each day, or 10,000 miles a year.
There is also no admin fee for the first three changes each year when making a policy alteration in the app.