AA Insurance has warned motor insurers of the need to increase premiums, after the broker reported a fall in motor premiums in the first quarter of 2006.

In its latest Insurance Premium Index, the AA recorded a 0.5% fall in the average comprehensive motor premium.

This follows a two year trend of relatively static prices.

Kevin Sinclair, managing director of AA Insurance, warned insurers of the threat of rising claims costs: "Although there is little sign of it now, I still believe present premiums will prove to be unsustainable and will have to start rising before long.

"Insurers are paying out more, yet average quoted premiums are falling - it just doesn't add up."

Sinclair said one reason for the decline in average premiums was that competition for comprehensive car insurance remained strong and that new channels and insurers were forcing existing providers to increase spending on advertising, a method which "almost exclusively" focuses on premiums, to maintain market share.