Motor insurance premiums may rise by ten per cent because of losses stemming from this summer's floods, predicts a new report.
A study by actuarial firm EMB reveals that despite consumer sentiment that the cost of motor insurance is high, the insurance industry in recent years has been subsidising premiums to keep market share as repair costs and injury claims increased.
EMB senior consultant Paul Moorshead said: "There's clear evidence that [insurers] have been using some of these profits to cross-subsidise their motor book.
"That will stop in light of the heavy claims they're getting from the floods."
He added: "Our analysis shows that insurers have been able to subsidise motor premiums because of reserve releases due to better than expected levels of personal injury claims in the past few years, but this won't go on forever."
The analysis shows that for every £100 motor insurers took in motor insurance premiums last year, they paid out £111 in claims and expenses, although investment income from premiums cut this figure to £106.
Already Aviva, through Norwich Union, has announced that motor insurance premiums will rise by an average of 16 per cent next year, and other insurers are forecast to follow suit.
"It's still a very competitive market out there, but the upward pressures on pricing are just too strong. Even with the premium increases that we're predicting, many motor insurers will end the year with significant underwriting losses," Mr Moorshead explained.
Ian Crowder, a spokesperson from AA, last month explained that premiums would have to rise because of increased costs.
He said: "Firstly the cost of meeting accident damage claims because the cost of repairing cars is going up. Modern cars are designed to protect the people in the cars they have technology designed to reduce the risk of injury of the occupant of the vehicle. As a result the vehicle tends to get more extensively damaged in an impact.
"Secondly there are more personal injury claims which are fuelled, in part, by the number of organisations who are making a no win/no fee advertising. The adverts they say there is no charge for the service because the third party pays for it, ultimately that is going to have an affect on insurance premiums."
He added that uninsured drivers also continue to be a source of rising expense for drivers and insurers.