Customers who take up the new policy will have to pay £50 for a global positioning device to be fitted to their car. The GPS tracker will allow Norwich Union to track the movements and 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. Motorways will be the cheapest, while smaller roads will be more expensive. Motorists are given 100 free miles each month. Driving at night will incur a £1 per mile fee while off peak driving during the day will be priced at 1p per mile.
Itemized billing will be available - much like mobile phone bills - with the premiums for each journey calculated and totalled.
Norwich Union has been trialing pay-as-you-drive insurance since August 2004, when a pilot scheme involving 5,000 motorists was launched.
According to Norwich Union, 67% of all drivers and nine out of 10 low mileage motorists say they would consider pay-as-you-drive insurance.
"We're confident that pay-as-you-drive insurance is simply a fairer way of calculating premiums and gives customers greater control, flexibility and choice. That's why we expect the first ever pay-as-you-drive insurance proposition in the UK to be a huge success with motorists," said Iain Napier, director of Norwich Union's pay-as-you-drive insurance.