Young drivers hit as motor insurance cost soars

The cost of comprehensive motor insurance has jumped by 11.5 per cent during the three months to the end of September alone, to stand at an average of 703.79, according to the AA.

The increase has been even steeper for third party, fire and theft cover, which now averages 1,098 after rising by 57.1 per cent during the past 12 months.

Young drivers are bearing the brunt of the increases, with men aged between 17 and 22 seeing the cost of their cover soar by 46.6 per cent during the past year to 2,457.

Women in the same age group have seen an even steeper jump at 58.7 per cent, although at 1,423 their premiums are nearly half those paid by men.

The AA said the rises to its index, which is based on the three most competitive quotes available for 2,800 different customers, were the steepest since it launched it 16 years ago.

But the group, which monitors the whole market, said price increases had been greatest at the cheapest end of quotes, suggesting that the availability of competitive deals was coming to an end.

It blamed the steep rises on the combination of rising fraud and increasing personal injury costs.

But it added that the insurance industry had been unprofitable for several years, as intense competition in the market had kept premiums artificially low.

Insurers paid out an average of 123 in claims and costs for every 100 they received in premiums during the past year, a situation the AA described as being "unsustainable".

It added that the pressure to improve profitability had become more intense during the recession, as personal injury and fraudulent claims were rising, at a time when insurers' investment income was falling.

The group warned the steep price increases were likely to continue into next year to coun-ter the increase in claims costs.

It said there were fundamental changes taking place in the market, with most motor insurers reporting heavy underwriting losses during the past year, while one company has gone into administration and three others had either left the market or were in the process of doing so.