AA's new year figures predicted to show premium rise for third successive quarter

AA Insurance is predicting an increase in motor rates for the third consecutive quarter as it prepares to publish its latest figures in the new year.

The British Insurance Premium Index, due to be published at the end of January, is expected to show another small increase in average premiums in the sector. This follows a small increase in October and a slight upturn in July.

The figures will be seized on as further evidence that rates in the motor market, which has not made an underwriting profit since 1994, are finally starting to harden.

Analysts say rates need to increase by between 6% and 10% for the market to make a profit.

A spokesman for AA Insurance said: "We are not going to see the damaging price inflation we have seen in the past but I do think the premiums will continue to rise."

He added that current premium levels were close to the highest ever seen, in January 2004, where the average comprehensive quote was £777.57.

The AA reported in October that the average quoted premium for third party, fire and theft cover had risen by 4.62% compared to the previous quarter. Comprehensive cover increased by 1.24% on the previous three months.

In July, comprehensive premiums increased by 0.49%.

The AA's analysis comes after the UK's largest motor insurers, Royal Bank of Scotland Insurance (RBSI) and Norwich Union (NU), took steps to increase their rates. Last week it emerged that RBSI had increased premiums by 5% on new business over the past quarter. In September, NU pledged an average 16% rise in premiums.

Other insurers have also started to increases their rates.

But despite moves to increase rates, there have been predictions of continued gloom for the motor market.

Deloitte forecast the market's combined operating ratio for 2007 would stand at around 110%, a deterioration of one point from 2006.

Catherine Barton, insurance partner at Deloitte, said: "The motor insurance marketplace has become increasingly competitive this year as insurers vie to win market share.

"If other insurers choose to follow NU's lead then this could help curb the overall decline in the motor insurance market's operating performance."

This week, Deloitte said premiums for new business had fallen by 2% in 2006.