Insurance charges are based on data from GPS satnav-style trackers that detect how well a driver handles a car by monitoring speed, cornering, braking and acceleration.
The spy-in-the-car also feeds back where you go and when. Insurance companies calculate their charges from analysing the data.
Pay as you drive insurance offers discounts for new and young drivers (aged 17-25) by rewarding them for safe driving.
The data is collected by an electronics pack fitted under the bonnet. Drivers can check their insurance costs and driving standards by accessing the data online.
Six insurers are backing the pay-as-you-drive car insurance scheme and 16,000 cars currently have the system installed.
Free tracker monitors how and when car is driven
Premiums depend on when a driver is on the road, with off-peak cheapest, rush hour more expensive and late at night even more costlier.
Drivers are not restricted to using cars at certain times; they simply tell the insurers how many miles they expect to drive in the year. Under estimates are likely to see a penalty charge while drivers who do less miles will trigger a refund.
Anyone who consistently drives badly or overruns on mileage could face higher premiums or policy cancellation.
With car insurance premiums of more than an average £1,500 for simple third-party fire and theft insurance for youngsters and premiums set to rise by at least 20% this year, the black box technology could represent a real cost saving.
Similar schemes were tried in the past, but were withdrawn due to cost and technical difficulties, but in the intervening years, technology has improved and is cheaper.
Tracker installation is free – with an added bonus of transmitting a vehicle’s location if it is stolen.