Pay As You Drive (PAYD) is a form of Usage-Based Insurance (UBI) in which motor insurance premiums are primarily linked to driving exposure – how much, when, and where a vehicle is used.
Unlike traditional pricing models that rely heavily on demographic and historical claims data, PAYD introduces measurable exposure-to-risk factors into underwriting. The core idea is simple: the more and the riskier a vehicle is used, the higher the exposure to potential claims.
PAYD focuses on usage patterns rather than driving style. It answers the question: how exposed is this vehicle to risk in everyday operation?
How Pay As You Drive Works
PAYD programs rely on telematics technology to measure real-world vehicle usage. Data is typically collected via:
- Smartphone-based telematics
- Embedded vehicle systems
- OBD or IoT devices
- Connected car platforms
The key variables in a PAYD model may include:
- Total mileage or kilometers driven
- Trip frequency
- Time of day (e.g. night driving vs. daytime driving)
- Road type (urban, rural, highway)
- Trip duration
These exposure indicators are translated into risk-adjusted pricing factors or scoring elements that complement traditional actuarial models.
For example, empirical studies show that certain driving contexts – such as short trips, long journeys, or urban driving – are associated with higher accident risk. PAYD allows insurers to reflect these differences in pricing logic.
PAYD vs. PHYD
Pay As You Drive (PAYD) is often mentioned alongside Pay How You Drive (PHYD), but the two models address different dimensions of risk.
- PAYD focuses on exposure to risk – how often, how far, and in what context a vehicle is used.
- PHYD focuses on driving behavior – how safely or aggressively a vehicle is driven.
Many insurers combine both approaches to achieve a more complete and differentiated risk assessment.
Why PAYD Matters for Insurers
Exposure to risk is a fundamental driver of claims frequency. However, traditional rating variables do not fully capture real-world usage patterns.
PAYD enables insurers to:
- Differentiate between high-mileage and low-mileage drivers
- Recognize risk variations between urban and highway usage
- Reflect seasonal or contextual exposure differences
- Improve fairness and transparency in pricing
- Identify low-risk drivers within otherwise higher-risk segments
In competitive motor markets with tight margins, exposure-based segmentation can provide measurable underwriting advantages without fundamentally changing core pricing models.
Dolphin Technologies and PAYD Implementation
Dolphin Technologies supports insurers in implementing exposure-based models through smartphone-based telematics and risk intelligence solutions.
With the MOVE SDK, insurers can capture detailed trip and mobility data directly within their existing mobile applications. This includes mileage, trip duration, road type, and contextual information such as time of day or weather-related risk indicators.
For insurers seeking a structured exposure-based scoring layer without operating a full telematics program, MOVE Score includes an Exposure to Risk (ETR) component. This quantifies how and when a vehicle is used and translates it into aggregated risk intelligence that complements existing underwriting models.
Depending on strategic objectives, PAYD logic can be implemented as:
- A mileage-based tariff
- A context-adjusted exposure factor
- A scoring component combined with behavioral indicators
The focus is not only on measuring kilometers, but on understanding meaningful exposure patterns that influence claims frequency and portfolio stability.