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

"It does not require the installation or expense of a telemetry device that communicates driver behavior and odometer readings to the insurer," the firm said. "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."

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...[that does] not require a monitoring device by enabling customers to report odometer readings."

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.

Mr. Haydon 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 that so far Progressive is the one U.S. 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.

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