After two years, a slower-than-expected installation of in-car GPS devices by vehicle manufacturers left insurance company Norwich Union at an endless red light. The “pay as you drive” insurance scheme was briefly halted according to Erik Nelson, senior media relations manager for Norwich Union. The company had hoped that the telematics-based insurance was going to be a main driver in the insurance industry.

The "Pay as you drive" plan from Norwich Union was intended to give drivers a more flexible option for covering their vehicles based on the actual circumstances under which they were driving, by watching where they drove, their speed and at what time of day. Cheaper rates were offered for off-peak driving.

But reports that Norwich Union had scrapped the pioneer, high-tech car insurance plan that tracked drivers using Global Positioning System (GPS) was less shocking if not expected among industry sources.

Norwich Union had partnered with Trafficmaster, a company that specialises in fleet tracking, traffic management and satellite navigation. Data transmitted from the vehicle's GPS device was encrypted and transmitted over a mobile network, according to information still on Norwich Union's Web site.

Norwich Union had given a number of its customers GPS devices to install in their cars to make up for the shortfall, but that proved too expensive for the insurer. However, according to the company, not enough customers were signing up although figures show that more than 10,000 were using system.

According to Norwich Union, the GPS device is assigned a unique code, which does not store information such as the registration, engine serial number or the driver's name address or phone number. However, the GPS device's code is eventually matched after the data transmission is complete to the person's insurance policy number to enable billing.

The “Pay as you drive” scheme offered two tariffs, one for drivers under 24 years old and then those between 24 and 75 years old. The younger drivers were billed 3 to 4 pence per mile from 6 a.m. to 11 p.m., when the rate then rocketed to £1. Nelson said statistics show that's when those drivers have the most accidents. The result: young drivers drove less at those hours and Norwich paid out less in claims.

The tariff for older drivers meant that they were billed on a variety of factors such as whether the road was single or double lane, the time of day and where the person was driving. However, there were reports that consumers were concerned about their privacy being compromised by a breach in the system, something which the insurer dismissed.  NU’s Erik Nelson said: "That's not something we have ever observed."

Statistics show that nearly a dozen fraudsters successfully impersonated customers when phoning call centres and cashed in on insurance policies. The fraudsters tried some 632 times in 2006 to scam the insurer and 74 of those attempts were successful. Losses were put at £3.3 million.

But increased incidents of data breach in the UK may not have encouraged drivers' to sign up. Reports indicate that Norwich Union was hit with a record £1.26 million (US$2.52 million) fine by financial regulator, the Financial Services Authority, in December 2007 over lax data security.

But defending the scheme, Norwich Union said the data would be processed in line with the Data Protection Act of 1988, which sets guidelines in the UK over how personal data should be handled. Reports also show that the vehicle data was handled in some form by at least four companies: Norwich Union, the insurer's appointed market agency and other contractors handling back-end systems.