Car insurance premiums are rising at their fastest rate for 15 years, with average premiums up 14% since last October. In the last three months alone prices have shot up 5.6% and this trend is expected to continue, warns the AA.

Drivers who fail to shop around face a typical premium of £821 for fully-comprehensive cover, while those who visit price comparison sites pay £552 on average, the AA said.

Young drivers have been most affected by the rise, with premiums for third party, fire and theft cover rising by 9.3% over the quarter and 17.6% over the year to an average quoted premium of £1,059. This type of cover tends to be bought by young people as it is significantly cheaper than fully comprehensive insurance.

The AA said that widespread unprofitability among car insurance companies was to blame for the rise in costs. A report by Datamonitor last year suggested that car insurance firms needed to increase their premiums by 20% if they were to remain profitable.

Simon Douglas, director of AA Insurance, said that although the recommendations had seemed excessive at the time, he now thinks the report could be right.

“Car insurers are facing fast rising costs, reserves for paying claims are depleted, and investment income has fallen, largely because of the recession,” he said.

“I estimate that across the industry, up to £110 is being paid in claims for every £100 taken in premiums – a situation that is clearly unsustainable.”

He added that an increase in fraud and personal injury costs had also contributed to the rise in premiums.

This entry was posted on Monday, November 2nd, 2009 at 11:35 am and is filed under Car Insurance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.