A San Francisco-based technology firm has partnered with anAustralian insurer to create a "trust-based" auto policy based onmiles driven that involves no monitoring device attached to thevehicle.

The new product offers low-mileage drivers a way to reduce theirauto premiums by lowering the technology barriers impeding theintroduction of "PAYD"--or "pay as you drive"--in world autoinsurance markets, according to Exigen Insurance Solutions, whichis partnering with Real Insurance (Australia) on theinitiative.

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 became involved because its services were needed todevelop the complicated billing module that the new productrequires, as well as a different claims system, according to itsrepresentative, Kevin Haydon.

Exigen said that "trust-based PAYD" differs from currentpay-as-you-drive systems in significant ways.

"It does not require the installation or expense of a telemetrydevice that communicates driver behavior and odometer readings tothe insurer," the firm said. "As a result, it alleviates deepconsumer privacy concerns that amount to a privacy penalty forthose who want a PAYD product but do not want a monitoringdevice."

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 wastime to offer a PAYD product...[that does] not require a monitoringdevice by enabling customers to report odometer readings."

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.

Mr. Haydon said Real Insurance goes to great lengths to makedrivers understand they must report mileage accurately, and sendstext messages when their mileage is near to expiration.

Karen Pauli, research director at Tower Group, said that so farProgressive is the one U.S. 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.

(To find out how the PAYD system works, see the accompanyinginfographic. More information about PAYD is available online athttp://www.exigeninsurance.com/about-exigen/news-events/payd-mediaroom.html.)