Car insurance premiums have risen steeply in the last quarter, according to the British Insurance Premium Index carried out by the AA, marking the fastest quarterly increase since the AA started its index in 1994.
The AA car insurance index, which analyses quotes from 90 per cent of the car insurance market, found that the average quoted car insurance premium has risen 5.6 per cent in the third quarter, or 14 per cent over the year (the greatest annual increase recorded), with third party car insurance quotes pushing up the average with a 9.3 per cent rise in premiums, a 17.6 per cent annual increase.
The index found that the average car insurance quote is now more than £821, up from £778 in the end of the second quarter of 2009, and £721 at the end of the third quarter in 2008.
The rise in third party car insurance premiums is largely due to the fall in the number of providers offering this type of cover, the AA explained.
Fraud, personal injury claims, uninsured drivers and car thefts have all contributed to the increase in the average car insurance quote, the report said, while insurers continue to pay out more in claims than they receive in premiums.
Simon Douglas, director of AA insurance said that most drivers can expect to see sharp increases in their premiums when it comes to renewal. The index suggests that 89 per cent of insurers have increased their premiums by more than £5 over the third quarter, while just 2.5 per cent have reduced them.
Young drivers' car insurance has been the hardest hit, as they are more likely than other drivers to take out third party with fire and theft cover, because it is cheaper than comprehensive insurance. They now face an average premium of £1,059, the index shows.
Mr Douglas is concerned that "premiums are fast becoming unaffordable for young drivers" which could encourage them to drive uninsured.
"Last year one industry commentator said that premiums must increase by at least 20 per cent if the car insurance sector was to return to profitability. At the time I thought this unlikely but it looks as if that prophecy might be fulfilled."
"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," Mr Douglas said. "Despite motor insurance being one of the most competitive markets in the UK, insurers have little choice but to put premiums up."
Lee Griffin, business development director for insurance comparison website Gocompare.com, said that any driver who gets a renewal quote that is significantly higher should "say no" and compare car insurance quotes to get a better deal.
"The AA's own figures show that the difference between the average car insurance premium and the ‘shoparound' figure (the average of the three cheapest quotes) is now £269.67. That is a significant saving for any household," he said.
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