Car insurance set for big increases

Motorists face big cost increases next year as the UK's biggest car insurer looks set to push through double-digit percentage rises in premiums.

Royal Bank of Scotland Insurance, which owns brands such as Direct Line, Churchill and Privilege, has admitted it is starting to increase premiums, just months after Norwich Union raised rates by up to 40 per cent.

The major players hope cheaper competitors will follow suit.

Henry Stevens, director of underwriting at the Admiral Group, whose brands include elephant.co.uk and Diamond as well as Admiral, said that if Royal Bank of Scotland Insurance continued to increase premiums into 2007, it would be forced to follow rather than risk being left with a lot of poor-quality, high-risk and costly customers.

"We believe Royal Bank of Scotland Insurance is the decisive factor in taking the market up in price," he said. "If it were to sustain a series of increases over the next 12 to 18 months, that would take rates up substantially."

Royal Bank of Scotland Insurance said its premiums across all key brands have already increased by five per cent since September. If the rises were maintained, that would translate into a 20 per cent increase in 2007.

On an average comprehensive car insurance premium of 762, that would mean a 152 increase.

Royal Bank of Scotland Insurance, the second-biggest general insurer by market share, said it was compelled to increase its premiums because for the past four years the cost of claims had outstripped revenue from premiums.

Ian Crowder, a spokesman for AA Insurance, said the increases were good for the industry. "You will find people will shop around even more now," he said. "The market is going to be even more polarised between the highest and lowest prices."