Car insurance set to soar

Insurance premiums are set to rise by £100 this year

The cost of car insurance is predicted to rise by up to a quarter in the coming year.

Business information group Datamonitor says insurance companies are losing money and as a result will raise their premiums to return to profit.

Figures show there has already been a 20% increase in the past 12 months, adding £100 onto the average premium. Over the next year premiums are expected to go up by the same amount again.

A rise in the number of accident victims taking insurance companies to court and high administration costs have been blamed for the increase.

Penalised

Datamonitor says much of the rise is due to "huge" underwriting losses, meaning that many firms now need to generate cash quickly.

Although such losses dropped to £1.31bn in 1999 from £1.47bn the previous year, it said the sum was "still considerable".

The cost of claims has also continued to rise, standing at £6.6bn in 1999 compared with £5bn four years earlier.

The average cost of a claim increased during the Nineties, from £1,082 in 1993 to £1,580 in 1999.

On a pound-for-pound basis, third party policyholders are likely to continue to be penalised as insurers look to get more customers to opt for fully comprehensive cover.

Competition

But Datamonitor predicts there will still be competition for customers, as figures showed consumers are twice as likely to switch motor insurers than change their household insurance provider.

Traditional companies also face a threat from new quarters such as supermarkets, which are becoming a growing force in the insurance market.

AA Insurance said Datamonitor's findings were largely in line with its own predictions that there will be a 20% rise in policies over the current year, adding an average of £100 to each policy by next January.

Its premium index shows that the average cost of a fully comprehensive policy rose from £363.85 in January 1995 to £602.53 at the start of this year.