Insurers deny that motor rates will soar by 25% this year, as stated in a report from market analysts Datamonitor.

Market leaders say the figure is wide of the mark, even though substantial price hikes are necessary to improve underwriting profits and counter rampant claims inflation.

Norwich Union, which has 26% of the market share, said a 15% rise would be a more realistic figure.

Direct Line, which has around 9%, said it had no intention of increasing premiums by "anywhere near that amount". A spokesperson said: "The boom-and-bust cycle of the insurance market suggests we are coming out of a period of cut-throat price wars - our advice to customers is to shop around."

The insurance industry has suffered from rising claims costs in recent years, due to normal accidental damage claims, as well as the rise in compensation payouts. Changes to rules on how to calculate final payouts and the emergence of no win, no fee litigation have stoked claims inflation.

Uninsured drivers also contribute to price hikes. Datamonitor says the UK has one of the worst records in Europe for uninsured drivers - at least 1.5 million drivers take to the road without insurance, leaving about one in 20 vehicles uncovered and honest drivers having to pay up to an extra £30 for their motor cover.

Motor insurance has been highly competitive in the past few years, as consolidation, the impact of internet and telephone insurers and the arrival of new insurers such as supermarkets took their toll.

The price war, which started in 1995, saw premiums slashed and insurers taking losses to increase market share. But the total value of claims increased from £5bn in 1995 to £6.6bn in 1999, while the cost of the average case went from £1,082 in 1993 to £1,580 in 1999.

Rising prices have followed a time of industry shake-up through mergers and acquisitions. Now the top ten insurers hold 73% of the market.

The larger groups which emerged are now trying to claw back costs - between January 2000 and January 2001, premiums increased by almost £100.