Drivers Facing 11 Per Cent Rise in Insurance Premiums

Drivers have been warned to brace for a double-digit percentage increase in the price of car insurance this year.

Broker AA estimates premiums will increase by about ten percent and 11 percent in 2009 as insurers continued to struggle with rising costs of fraud and personal injury claims.

Some insurers say the premiums can soar by as much as 20 percent, while AA Insurance said that it is not seen this level of growth, it added that such an increase would be needed if the deposit liabilities have been profit.

Insurance companies pay out about 105 pounds of costs and charges for every 100 pounds they inch premium

In the past, the mis-matching contributions and the cost was not a problem as the industry has been able to recover the difference by investing premiums on the stock market.

But in the current volatile investment climate, they are no longer able to make up the shortfall in this way.

The insurance industry has not done underwriting profit for about 20 years, with premium increases earlier down by competition are due to enter service providers in the market and online price comparison websites.

But AA Insurance said the average cost of the most competitive comprehensive motor insurance premiums grew by 8.7 percent over the year to end-September to an average of 486.45 pounds.

The figures are not yet available in the last quarter of the year, but thought the premiums jumped by about three percent in the three months to the end of December alone.

The problem for the industry is the fact that claims costs have increased sharply in recent years, especially personal injury claims, due to the rising costs of medical care and the growing number of "no win, no fee" claims companies.

Ian Crowder, AA Insurance, said: "Some commentators point to an increase of 20 percent over the next few years and, of course, increase the size of that will be necessary if the insurance industry is to achieve the commitments of profit."

The figures show that the fraud costs increased by about 17 percent over last year, adding about 30 pounds at the expense of all policyholders.

Honest drivers also pay about 30 pounds each year to cover the cost of accidents caused by uninsured drivers.

But the biggest growth came in the cost of personal injury claims and legal costs associated with those of the top 22 percent in the last year.

About 430,000 claims against whiplash have been made in the last year, which led to the total compensation bill of £ 1.9billion. Whip represents about two-thirds of all injury claims, adding about 66 pounds in annual insurance premiums for all drivers.