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

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

According to Exigen, “trust-based PAYD” differs from the current market-place pay-as-you-drive systems in significant ways, noting that “it does not require the installation or expense of a telemetry device that communicates driver behavior and odometer readings to the insurer. As a result, it alleviates deep consumer privacy concerns that amount to a privacy penalty for those who want a PAYD product but do not want a monitoring device.”

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

“Motorists are changing their travel patterns to accommodate the rising cost of gas, increased traffic congestion and environmental concerns,” said a statement from Roger Grobler, chief executive officer at Real Insurance.

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

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

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

“Most legacy policy administration and actuarial systems are designed with a heavy rating emphasis on insured vehicle year, make and model. PAYD has completely altered this to mileage-driven,” he added.

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

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

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

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

He said Real Insurance goes to great lengths to make drivers understand they must report mileage accurately, and sends text messages when their mileage is near to expiration.

Karen Pauli, research director at Tower Group, said so far Progressive is the one company offering some mileage-based coverage, but noted it involves a chip that “monitors driving behavior as well as mileage.”

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

Interest in the coverage “will be peaked because of the gas crisis. Carriers will want to offer new rating plans, “she suggested.

Such policies, said Ms. Pauli, are very attractive to people who work 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.