NU says the in-car GPS devices will allow it to build the insurance policy around each individual motorist.

Customers will receive monthly bills based on car usage, including time of day, type of road, and mileage. Itemised billing will be available with the premiums for each journey calculated and totalled.

The insurer has been piloting the technology for the past four years. In February 2002, under an agreement signed with US insurer Progressive, the firm rolled out a number of black box devices which record the time, distance and location of a vehicle's journeys. In 2004, a trial of the system involving 5000 motorists was launched.

Using driving data from the pilot scheme, NNU says it has developed the 'Pay As You Drive' insurance policy to help motorists control the cost of their insurance by making informed choices about when, where and how often they use their car. Pricing for the insurance begins from a penny per mile, says NU.

The insurer has launched two new Pay As You Drive insurance policies, one for motorists aged 24-65 and another for young drivers aged 18-23.

NU says research conducted by Simpson Carpenter shows that British motorists are ready for the scheme, with 67% of all drivers and nine out of 10 low mileage motorists saying they would consider signing up.

But according to research released by personal finance site moneysupermarket.com last month, over a quarter of UK drivers (27%) would refuse to have a 'black box' tracking device fitted to their cars, even if it dramatically reduce insurance costs.

Commenting on the launch of the NU scheme, Richard Mason, director of insurance at moneysupermarket.com, says: "Unless you're an exceptional case, such as a motorway-loving, low-mileage, off-peak driver, working out whether you will save money won't be easy. It relies on accurately predicting which types of roads you will use, how often you drive and at what times. Getting your motor insurance maths wrong could cost you."

But Kay Martin, head of Pay As You Drive insurance at NU, says the scheme "provides an innovative solution for young drivers while also appealing to a broad range of motorists who see the benefits of paying for insurance based on actual vehicle usage".

"The future of insurance is tailored products to suit people's lifestyle and the launch of Pay As You Drive insurance is the first step in this direction," adds Martin.