Norwich Union has launched a "pay as you drive" scheme aimed at personalising motor insurance payments by using "black box" computer technology which records exactly how individuals use their car.

The black box device, which is installed in customers' cars, collects data on an ongoing basis using technology similar to that used in mobile phones.

It will allow the insurer to calculate monthly premiums based on how often, when, and where the vehicle is used.

If the pilot scheme is successful it could mean cheaper premiums for low mileage drivers - many of whom feel unfairly penalised by existing policies and who have been campaigning for schemes which reflect their usage for some time.

The project will be piloted among 5,000 people from the end of the year before an expected roll out in 2004 across the UK and Europe.

Norwich Union has an exclusive agreement with US insurer, Progressive, to operate the scheme and says nine out of ten people in its research "would prefer their motor insurance to reflect the usage of their car and the type of journeys they make."

Robert Ledger, programme director of Norwich Union, says: "Motorists would receive a fairer deal as this initiative provides them with the opportunity to really be in the driving seat when it comes to controlling their premiums.

"We believe pay as you drive insurance is the future."

There is some concern however that a "black box" device used in this way could eventually become a 'spy behind the wheel' logging every speeding and motoring infringement by drivers.