Scheme is designed for drivers covering fewer than 6,000 miles a year.

The RAC has introduced a new “no-ties” pay-by-the-mile insurance policy designed specifically for those covering fewer miles. The motoring organisation says the idea is aimed at “saving money” for drivers who cover fewer than 6,000 miles every year.

According to the RAC, the new policy will charge drivers an agreed rate, known as the Mileage Premium, for every mile they drive. That will be joined by a so-called Parked Premium, a monthly fee that’s fixed no matter how many miles the car covers during the course of the year.

The car’s mileage is monitored using a “small drive tag” that’s attached to the windscreen. That detects when the car is in use and transmits the distance travelled to the RAC Pay by Mile smartphone app. The company says no other data is transmitted by the tag.

Woman driving car at night in traffic

Nevertheless, drivers will be able to keep track of their mileage and costs using the Pay by Mile app. The RAC also says drivers will be able to make changes to the policy – such as changing the vehicle or address – without paying additional fees, and any changes to either the Mileage Premium or Parked Premium take effect immediately. If drivers decide the policy is no longer for them, or they sell their car, the policy can be cancelled immediately without incurring fees.

The RAC says the introduction of Pay by Mile policies is a reaction to data showing drivers are covering 20 percent fewer miles than two decades ago. It’s also a reaction to the coronavirus pandemic, which has also seen a number of drivers reduce their mileage due to the increase in home working.

Driveways in UK suburban residential street

“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,” said Mark Godfrey, the managing director of RAC Insurance. “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. For people who don’t drive very regularly or only ever go short distances, this could result in a premium that seems overly expensive.

“Pay by Mile from RAC Car Insurance offers something different. After paying a one-off £50 activation fee and a small set monthly sum that covers the vehicle for all the time it’s parked, drivers just pay a clear ‘per mile’ price of as little as 4p for every mile they actually drive. This way, motorists save money for whenever they don’t, or can’t, drive.

“The impact of the coronavirus pandemic on driving patterns means it feels like this product has never been more relevant. So many of us are driving fewer miles now, which means we might well be frustrated at how much we’re having to pay for car insurance. 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.”