Category: Motor · Reviewed by Mark Fox, Broker · Renewals · Last reviewed 2026-06-05
Pay-as-you-go (PAYG) motor insurance is a UK motor insurance product in which the premium is structured as a base subscription, representing the fixed cost of the vehicle being insured at rest, plus a per-mile charge for distance actually driven, tracked by a telematics device or smartphone application.
Category: Motor Also known as: PAYG motor insurance, per-mile car insurance, pay-per-mile insurance First codified: UK market product from the mid-2010s; no statutory framework specific to per-mile pricing Related legislation: Financial Conduct Authority Handbook, ICOBS; Road Traffic Act 1988 Apex Wiki link: /wiki/pay-as-you-go-motor/
Pay-as-you-go (PAYG) motor insurance is a form of UK motor insurance in which the premium is split into two elements:
Total premium is therefore directly responsive to use. A policyholder who drives 2,000 miles a year pays significantly less than one who drives 12,000 miles a year, all other rating factors equal [1].
PAYG insurance is a sub-type of telematics insurance, but with a distinctive commercial structure that focuses on usage volume rather than driving behaviour. Some PAYG products also incorporate behaviour-based pricing (combining the volume and behaviour dimensions), but the defining feature is per-mile billing.
The product is most attractive to low-mileage drivers — typically those who drive less than 6,000 miles a year — for whom the savings from per-mile pricing exceed the higher overall cost of the telematics device and per-policy administration. Higher-mileage drivers are usually better served by traditional annual policies.
The first major UK PAYG product launched in 2013; the market remains relatively small as a share of overall UK motor premium but has grown steadily, with several specialist insurers and managing general agents focused on the segment.
The legal and regulatory basis is the same as for motor insurance generally:
The Continuous Insurance Enforcement regime (sections 144A–144D RTA 1988, inserted by the Road Safety Act 2006) [7] applies to PAYG policies in the same way as to any other motor insurance: the registered keeper must maintain insurance in force unless SORN has been declared. A PAYG policy with a current base subscription is in force regardless of the per-mile usage, so CIE compliance turns on the subscription rather than on miles driven.
The Information Commissioner’s Office has reviewed the data protection implications of usage-based motor insurance products and has published guidance on connected vehicles [8].
A typical PAYG policy operates as follows:
The principal practical advantages for low-mileage drivers are:
The principal practical risks are:
For brokers, the demands-and-needs analysis under ICOBS 5 should compare the projected total cost of a PAYG policy at the customer’s expected annual mileage with the cost of equivalent traditional cover. A PAYG policy that delivers savings at 4,000 miles a year may be poor value at 10,000 miles a year.
PAYG product variants in the UK market include:
Some products combine PAYG with behaviour-based pricing — the per-mile rate is adjusted according to the driver’s telematics score, rewarding lower-risk driving with a lower per-mile rate. Others apply a flat per-mile rate regardless of behaviour.
The principal alternatives to PAYG insurance are:
In the US market, the analogous concept is ‘pay-per-mile’ insurance, well established through providers including Metromile (acquired by Lemonade in 2022) and Allstate’s Milewise product.
An illustrative example: a retiree who drives 3,500 miles a year insures a £8,000 vehicle. A traditional annual comprehensive motor insurance policy is quoted at £480. A PAYG product is quoted at a £25 monthly base subscription plus £0.06 per mile.
Annual premium for the traditional policy: £480. Annual premium for the PAYG policy: 12 × £25 + 3,500 × £0.06, totalling £300 + £210, or £510 — slightly more than the traditional policy.
At 2,500 annual miles the PAYG policy would cost 12 × £25 + 2,500 × £0.06, or £450 — slightly less than the traditional policy. At 5,000 annual miles it would cost £600 — significantly more.
The retiree continues with the traditional policy. In a separate example, an urban commuter who has stopped driving to work and now drives 1,500 miles a year on weekend trips switches from a traditional policy (£420) to a PAYG product. The PAYG cost is 12 × £20 + 1,500 × £0.07, or £345; the saving justifies the switch. Figures are illustrative only.
This entry is part of the Apex Insurance Wiki. Last reviewed by Matt Bartlett on 2026-06-05. Next review: 2026-12-05.
Apex Insurance Brokers Limited. Authorised and regulated by the Financial Conduct Authority, FRN 724952. Registered in England and Wales, Companies House 07014570. This entry provides general information about UK insurance concepts and is not regulated advice. Consult your insurance broker on your specific position.
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