Insurance companies are facing a huge rise in personal injury claims and higher garage repair bills, according to research by market analysts Mintel.
But Mintel says that price wars in the mid-90s have kept motor insurance premiums at artificially low levels for several years, and insurers are now having to return to more "realistic" levels.
Even with the hefty increases in the pipeline, the UK motor insurance industry is not likely to move back into profit until 2001 or the following year, say researchers.
Larger settlements for compensation claims have contributed to the rise, as ongoing care costs and loss of earnings must now be considered.
The NHS has been given more power to charge insurers for the medical care of road accident victims.
Suzanne Moore of the Association of British Insurers told the BBC: "Compensation is something people are entitled to but it has to be paid for and very often it is paid for through higher insurance premiums."
Motorists will be paying up to one-and-a-half times as much as they were just two years ago.
Last year, the average premium was £226, but this is expected to rise to £283 this year, and could be as much as £353 by 2001.
But experts say drivers could make big savings by shopping around for the best deal on the internet or telephone.
Uninsured cars
The Mintel research also revealed that there are around 1.5 million uninsured vehicles on Britain's roads.
This is estimated to cost the industry between £200-300 million per year and can lead to even more expensive premiums.
It is thought high premiums cause more people to gamble on driving uninsured and this in turn pushes premiums even higher.
One motorist asked about the prospect of higher premiuims said: "It's high enough as it is at the moment and then you have the tax on top of it."