Increases

Car insurance costs look set to rise from October 2006 following a move by Norwich Union, the UK's second largest car insurer, to raise its rates by an average of 16%. The firm said its hand had been forced by a similar rise in claim costs over the past two years, during which time insurance rates had remained static.

Norwich Union said claims for personal injuries had been the main reason for the rise in its costs and insurance for riskier customers, such as young men, will rise by up to 40%.

David Ross of the Norwich Union warned that other insurers would probably copy his firm's example, he goes on to say:

"I think we'll find that most insurance companies will follow our lead - we're the largest insurer in the country, one of the largest motor insurers," he said.

"There is an expectation amongst various commentators in the sector that motor premiums will need to rise to reflect the increase in claims costs, particularly from the more litigious society that we find ourselves living in."

Why premiums are increasing.

The Association of British Insurers (ABI) said costs were rising in several areas.

"The first is personal injury costs, a very large part of your premium covers personal injury, with the average claim doubling to £2,800 in the last five years and secondly, there is a major problem around uninsured driving. There is around a million uninsured drivers on the road, and all of us pay £30 on our premiums to cover those." said Nick Starling of the ABI.

In 2005 payments by the Motor Insurers' Bureau (MIB), which compensates other road users in the event of an accident with an uninsured driver, totalled £320 million.

The MIB scheme is funded by a compulsory levy on car insurance premiums, which currently adds around £30 to the average comprehensive premium of £750.

Fraudulent claims and in particular, staged accidents are another source of rising costs, adding around £40 to premiums. This is when gangs sandwich an innocent driver between two cars, making it seem as though he or she is at fault and claim on their insurance policy.

Insurance claims and costs continue to increase.