Motor premiums are at the highest ever level and still rising, according to the latest AA Insurance British Premium Index.

It revealed the cost of comprehensive motor insurance leapt 4.23% in the last quarter for 2006, after predicting an increase in motor rates at the end of last year. This follows a small increase in the previous two quarters, and raises hopes that the market will eventually turn a profit after many years in the red.

The average quoted premium for an annual comprehensive car insurance policy has now risen to more than £800 for the first time, according to the broker.

Kevin Sinclair, managing director, AA Insurance, said: "Other insurers are now following Norwich Union's lead and have increased premiums to more realistic levels given that the cost of claims is rising at about 6% per annum - and this is reflected in the Index."

Catherine Barton, insurance partner at Deloitte, said: "If sustainable this will be good for the industry but more will still be needed to turn the market to profit."

Alliance & Leicester is entering the motor market after signing a three-year affinity deal with Equity in what is seen to be a price-driven offering. It pledges it will beat any renewal quote by £10.