‘I’ve saved £280 on my car insurance’: Would you be better off on a pay-as-you go policy?

‘I’ve saved £280 on my car insurance’: Would you be better off on a pay-as-you go policy?
‘I’ve saved £280 on my car insurance’: Would you be better off on a pay-as-you go policy?

Most of us assume that the less we drive, the less we pay for our car insurance. After all, it stands to reason that if you’re parked up and not driving, you’re far less likely to have an accident.

But a recent report suggests otherwise: it found up to 19 million low mileage motorists are in danger of being ripped off for their policies.

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According to the research, motorists declaring between 5,000 and 6,000 miles a year are being charged an average of £233 more than those driving 11,000 miles a year.

The findings were based on analysis of nearly 2.5 million car insurance quotes on comparison site MoneySupermarket, made between 1 July 2018 to 30 September 2018.

The average car in the UK is driven 7,134 miles a year, according to latest figures from the Department for Transport, which is where the 19 million projection came from.

The study, carried out by car insurance provider By Miles – which it should be noted offers pay-by-the-mile policies and so has a vested interest – discovered the average quote given for those with an annual mileage of 5,000 to 6,000 miles is £809, whilst for 11,000-12,000 miles it is £576 – a difference of £233.

This graph by car insurance provider By Miles shows an unexpected relationship between mileage and quotes (Photo: By Miles)
This graph by car insurance provider By Miles shows an unexpected relationship between mileage and quotes (Photo: By Miles)

Low mileage drivers subsidise high mileage motorists

As car insurance premiums take a range of factors into account – including your age, where you live, occupation and the car you drive – this figure is an average and the exact potential saving would vary from person to person.

By Miles said the extra £233 per year can be, in some instances, proportionate to lower mileage drivers bills – the lower mileage driver may still get a cheaper overall quote but measured by mile, it is more expensive.

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Insurers don’t seem to be pricing low mileage drivers higher due to lack of experience, the firm claims. Motorists who’ve built up between six to eight years of no claims discount and drive 5,000 to 6,000 miles a year are still charged £100 more than those driving 10,000 to 11,000 miles a year.

The company argued the reason for low mileage drivers being charged more is to subsidise the insurance of higher mileage drivers.

James Blackham, co-founder of By Miles, said: “Those who don’t drive as much are being treated unfairly. They’re being charged more to subsidise the insurance of higher mileage drivers.

‘The current state of play presents motorists with a Catch 22 situation – either tell the truth about how much you’re driving and pay over the odds, or lie to get the cost down but risk having your insurance invalidated when you need to make a claim.

“This needs to change. If you don’t use your car much, it doesn’t make sense to charge you the same as a longer distance driver as the odds of you having an accident are significantly lower.

‘Pay-by-mile insurance means that people who drive less are rewarded, and rightfully pay less.”

‘Pay-by-mile has saved me £280’

Jonathan Haselden lives in London and relies a lot on public transport so doesn't drive much (Photo: Jonathan Haselden)
Jonathan Haselden lives in London and relies a lot on public transport so doesn’t drive much (Photo: Jonathan Haselden)

Jonathan Haselden, an events organiser from west London, estimates he drives around 3,000 miles a year. If he does so this year, he will save about £280 having switched to By Miles compared to his renewal quote with his previous insurer.

The 37-year-old was quoted £680 for his BMW 116 I Sport, even though he has 18 years of no claims discount.

“Living in London, I don’t use my car that much as it’s easier to use public transport to commute,” he told i. “However, I still need my car to travel to gigs as I’m a musician, and the occasional trip or to visit friends and family.

“I was getting even higher quotes of between £1,000-£2,500 on comparison sites to start a new car insurance policy despite declaring low mileage.”

The 37-year-old was quoted £680 for his BMW 116 I Sport but it was cheaper on pay-as-you-go (Photo: Jonathan Haselden)
The 37-year-old was quoted £680 for his BMW 116 I Sport but it was cheaper on pay-as-you-go (Photo: Jonathan Haselden)

With By Miles, he has paid a £241.89 fixed annual cost, to cover his car while he’s parked. Then he’s charged 5.3p a mile, which is paid for at the end of each month.

“I was a bit sceptical at first, but the tracker was easily fitted within about five seconds and I’ve been using it now for three months and it is working out cheaper.

“My first statement cost me just 92p, so I’ll probably end up driving under 3,000 miles by the end of the year.

“So even paying the cancellation fee from my old insurer it’s working out a better deal for me.”

How does pay-as-you-go car insurance work?

With pay-as-you-go car insurance (sometimes called telematics insurance), you usually pay a fee at the start of your policy. This is to cover your car against theft, vandalism and accidental damage while it’s parked.

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The customer is sent a tracker to plug into their car which will record the miles driven. This device will then send your mileage data to the insurer.

Typically you’ll be able to monitor your miles using the insurer’s app or on their website. You’ll usually then pay for the miles you’ve driven at the end of the month – and only those miles.

There’s normally a standard excess fee with these policies if you want to claim.

According to Moneysupermarket, pay-as-you-go is usually better suited to motorists who drive 7,000 miles a year or lower.

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