Motorists have been warned to brace themselves for further double digit increases in car insurance premiums during 2009.
The AA this week said the cost of motor cover had risen by 11 per cent in 2008, and it expected a similar increase this year as insurers took action to address their underwriting losses.
The average annual premium for comprehensive car insurance rose by 1.3 per cent during the three months to the end of March to £751.60, the first increase seen during the first quarter for six years.
The AA’s shoparound index, which compares the three most competitive quotes available, also rose by just under one per cent to £504.38.
The group said insurers were facing rising costs due to higher theft, fraud, and personal injury claims and increased legal expenses, at a time when their investment income was falling.
It estimated that for every £100 that motor insurers received in premiums, they were paying out around £105 in claims and costs.
Simon Douglas, director of AA Insurance, said: “Although 1.3 per cent may not sound much, premiums fell during the same period in each of the past five years, so this increase is a significant indication that insurers are determined to address past underwriting losses this year, as we predicted last year.
“Premiums tend to fall a little during the first three months of the year.
“It’s when most car insurance renewals take place, while the new March car registration change prompts customers to look for new insurance cover, so competition between insurers tends to hold premiums in check.
“But the industry is facing escalating costs, falling investment income and underwriting losses. Premium rises are therefore inevitable.”
During the past 12 months, the average comprehensive insurance premium has increased by nearly 11 per cent.
Mr Douglas said: “I expect premiums to increase by at least a similar percentage over the rest of 2009.”
Meanwhile, the cost of buildings insurance rose for the eighth quarter in a row, with the average premium increasing by 50p to a new high of £218.53 a year.
The cost of buildings cover has risen by eight per cent during the past year, the biggest increase recorded by the AA since it started collecting the data in 1994. Premiums for home contents insurance rose more steeply, jumping by 2.7 per cent during the quarter to average £126.34, reversing the downward trend seen during the previous two months.
But despite the rises, the AA said home insurance still offered good value, having only risen by a few pounds since the index started in 1994.
Mr Douglas said: “Although contents cover remains competitive, the average quoted premium has risen by nearly one per cent per month over the past quarter, which is an unusually sharp increase.”