Millions could be hit by hikes in car insurance

The insurance giant behind names such as Direct Line, Churchill and Privilege, has raised rates in recent weeks, while analysts believe there is more to come in 2007.

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The move by the parent company, the Royal Bank of Scotland Insurance, follows increases by other leading players.

Insurance industry leaders claim they are responding to the spiralling costs of personal injury claims, with the associated medical bills, compensation and legal fees.

There are also big bills for the industry because of the rising problem of accidents caused by drivers, mainly young men, without insurance.

However, it is clear that the insurance industry is trying to boost its profit margins after a number of years of cut-throat competition.

One recent study suggested the average profit per customer from general insurance - car and home - has gone up by 50.3per cent in the past year.

The average is understood to have risen from £23.20 a year to £35.10. It now seems that this figure will rise even further during 2007.

Norwich Union was the first of the big names to announce that premiums would be going up sharply in August. Some policies have increased by 40per cent.

The news that such a big player was pushing up rates has effectively removed a key element of competition and given others in the industry the freedom to increase rates.

Any deliberate and secret collusion on raising premiums would be an illegal cartel which could lead to prosecution and fines.

However, it is not illegal for a company to publicly announce premium rises in a way which gives others the green light to do the same. Royal Bank of Scotland Insurance, which is the UK's second biggest general insurer, said motor policy premiums across all its key brands have gone up by 5per cent since September.

It said the increases have been necessary because it has been paying out more in claims than it has been receiving in premiums since for the past four years.

Industry experts believe further rises are in the pipeline, with premiums across the industry expected to be around 20 per cent higher in 2007 than this year.

An increase of that scale would take push up the average premiums on a comprehensive policy by £152 to £762.

The Admiral Group, which is responsible for insurance brands such as diamond, which is marketed to women drivers, and elephant.co.uk, has hinted at rate rises.

Its director of underwriting, Henry Stevens, said: 'We believe Royal Bank of Scotland Insurance is the decisive factor in taking the market up in price.

'If it were to sustain a series of increases over the next 12 to 18 months that would take up rates substantially.'

When Norwich Union put up its prices in the summer, the company made clear that it expected others would follow suit.

At the time, a spokesman said: 'I think we'll find that most insurance companies will follow our lead - we're the largest insurer in the country, one of the largest motor insurers.

'There is an expectation amongst various commentators in the sector that motor premiums will need to rise to reflect the increase in claims costs, particularly from the more litigious society that we find ourselves living in.'

The Association of British Insurers said the industry is being hit by rising costs.

It said: 'The first is personal injury costs - a very large part of your premium covers personal injury - and secondly, there is a major problem around uninsured driving.

'There's around a million uninsured drivers on the road, and all of us pay £30 on our premiums to cover those.'