A San Francisco-based technology firm said it has partnered withan Australian insurer to create a “trust-based” auto policy basedon miles driven that involves no device attached to thevehicle.

Exigen Insurance Solutions said the new offering from RealInsurance (Australia) is the first of its kind and protectsdrivers' privacy.

Low-mileage drivers, according to Exigen, now have a new way toreduce the amount they spend on their auto premiums, with a productthat lowers the technology barriers impeding the introduction of“PAYD”–or “pay as you drive”–in world auto insurance markets.

Real Insurance, a part of the Johannesburg, South Africa-basedHollard Group of companies, offers Australian motorists ausage-based insurance product that allows them to pay only for thekilometers they plan to travel.

Exigen served as both a business partner and a technologypartner to Real Insurance.

Kevin Haydon, a spokesman for Exigen, said the technology firmbecame involved because its services were needed to develop thecomplicated billing module that the new product requires, as wellas a different claims system.

According to Exigen, “trust-based PAYD” differs from the currentmarket-place pay-as-you-drive systems in significant ways, notingthat “it does not require the installation or expense of atelemetry device that communicates driver behavior and odometerreadings to the insurer. As a result, it alleviates deep consumerprivacy concerns that amount to a privacy penalty for those whowant a PAYD product but do not want a monitoring device.”

In California, Insurance Commissioner Steve Poizner recentlypromulgated rules to allow mileage-based policies–as long as onlymileage is monitored, citing privacy concerns.

“Motorists are changing their travel patterns to accommodate therising cost of gas, increased traffic congestion and environmentalconcerns,” said a statement from Roger Grobler, chief executiveofficer at Real Insurance.

“Against this backdrop we felt it was time to offer a PAYDproduct. We created the first product to not require a monitoringdevice by enabling customers to report odometer readings,” said Mr.Grobler.

“We were fortunate to have Exigen as both a technology andbusiness partner, with a strong mutual incentive to create amarket-friendly, best of breed solution,” he added.

Boston-based Tower Group released research in November 2007 thatprofiled PAYD implementation as “embodying two principles ofinnovation insurers must consider in their future plans: be agile,and be willing to accept risk,” said Matthew Macauley, a seniorresearch associate at TowerGroup.

“Most legacy policy administration and actuarial systems aredesigned with a heavy rating emphasis on insured vehicle year, makeand model. PAYD has completely altered this to mileage-driven,” headded.

Under the PAYD system, drivers get a sticker on their windshieldthat tells them how much mileage they are insured for, and for howlong. Unused miles can be carried over. If a driver is going toexceed the limit, they must buy insurance for additional mileage.If they fail to do so, their liability coverage expires, but theycontinue to have fire and theft coverage.

Odometer readings are verified if a claim is lodged, but ifthere are no claims over a three-year period, drivers get a 10percent rebate.

Information on PAYD is available online athttp://www.exigeninsurance.com/about-exigen/news-events/payd-mediaroom.html.

Mr. Haydon said the product has just been put together, “so nowwe are trying to bring up the subject to the industry.”

He said Real Insurance goes to great lengths to make driversunderstand they must report mileage accurately, and sends textmessages when their mileage is near to expiration.

Karen Pauli, research director at Tower Group, said so farProgressive is the one company offering some mileage-basedcoverage, but noted it involves a chip that “monitors drivingbehavior as well as mileage.”

She said the Norwich insurance firm in the United Kingdom had anoffering, but “didn't get enough uptake,” and some carriers inGermany are offering it.

Interest in the coverage “will be peaked because of the gascrisis. Carriers will want to offer new rating plans, “shesuggested.

Such policies, said Ms. Pauli, are very attractive to people whowork from home or live in a city with public transit.

All auto policies have mileage as a rating factor, she noted,but until now none were solely based on how far you drive.