Insurance set to soar in 2009

Car owners could see insurance costs rise by up to 20 per cent over the coming year.

Insurance companies are warning that a rise in the cost of personal injury claims and increased fraud will push up premiums in the next 12 months.

AA insurance has warned that there will be an increase in premium costs, but that the figure would be around the 10 per cent mark. Premiums have already been on the on the increase over the last year as the economic downturn affected insurance companies.

The AA said that the average cost of the most competitive comprehensive insurance premiums had gone up by 8.7 per cent to the end of September to an average of £486. Although there are no official figures for the final quarter of 2008 it is thought there was a further three per cent rise up to the end of December.

Swinton insurance spokesman, Steve Chelton, said: "We're expecting a rise of around 20 per cent so if you were paying £350 last year, you could end up paying £420. This is an industry issue and right across the board not just specific to certain companies.  

"The problem is that car insurance is an incredibly competitive market and companies have been very reluctant to put up the price of their premiums. At the moment for every £1 insurance companies get in premiums they are paying out around £1.20."

Around 430,000 people claimed for whiplash injury last year, according to the AA, resulting in a compensation cost of £1.9 billion. Fraud costs have also increased during the past year going up by 17% which has added around £30 to the cost of all insurance premiums. 

Insurance companies currently pay £105 in costs and claims for every £100 of premiums they take in. This mis-match has not been a problem in the past as they would recoup the difference by investing in the premiums in the stock market, but they are now struggling to do this with the current financial climate.

Malcolm Tarling, of the Association of British Insurers, said: "Insurance companies are under increasing pressure to raise their prices to cover the rising costs of personal injury claims and increasing legal costs.

"Even if premium costs do go up, the best thing for customers to do is to shop around insurance companies in order to get the best deal."