Small black boxes will be fitted to the policyholder’s car, tracking each journey completed, allowing the insurer to bill the motorist for each mile driven.
The two-year pilot scheme could help cut premiums for occasional car users, but may mean more expensive car insurance for high-mileage drivers.
The box records real-time vehicle usage and sends the data to Norwich Union using mobile technology.
A monthly insurance bill will then be sent to the policyholder based on an agreed insurance cost per mile.
Progressive Insurance, the USA's fourth largest car insurer, has already piloted a pay-as-you-drive scheme across the Atlantic.
Norwich Union, the UK's largest car insurer, has exclusive rights to market the technology in UK and Europe.
If the pilot is successfull the technology may become available to other Norwich Union customers.