Ian Mosley, chief executive of EuroDollar, said Norwich Union, the company's insurer for nearly 18 years, had increased its premiums this year by 40 per cent to pounds 1.8m.
'We think that a 10 to 12 per cent rise was justified from our claims experience. We are looking to set up our own insurance company and have told Norwich Union,' he said.
EuroDollar's pathfinder prospectus states: 'Cost of sales also includes accident rates and theft, which are a fairly constant proportion of turnover. Measures are being taken to establish a wholly-owned, captive insurance company in Guernsey to control costs further.'
The company self-insures its damage and theft risk, the cost of which is offset by collision damage waiver and customers' own insurance in the corporate sector.
While the costs of higher insurance are passed directly to the consumer, the car rental industry is in the tentative stages of recovery and cannot afford to lift hire charges too sharply.
EuroDollar will know in September or October what Norwich Union proposes to do with premiums for 1995.
'We don't think this rise in premiums will happen again. But what knocks us off track are sudden rises in costs we cannot control, like interest rates, used car prices and insurance premiums,' Mr Mosley said.
The rental market peaked in 1990, when turnover was pounds 600m. It dropped to pounds 550m a year later and slowly pulled back to pounds 583m last year. The number of car rental businesses last year fell 14 per cent to 1,550.
Rental companies have had to scramble to hold market shares by cutting car hire rates. Customers are paying 20 per cent less to hire a car now than in 1989.
EuroDollar has a UK fleet of around 12,000 vehicles, including 700 vans. It holds cars for about six months and vans for up to two years.
City analysts estimate that the company, bought out by management from TSB for around pounds 60m last summer, will be worth between pounds 115m and pounds 130m when it reveals its flotation share price on Wednesday.
Continuing operations made pounds 12.5m before tax in the year to 31 March, up from pounds 9.15m in 1992/93. However, a disastrous acquisitive foray into the French and Italian markets resulted in an overall loss of pounds 3m in 1992/93 and nearly pounds 6m last year.
Mr Mosley said EuroDollar had learned from its mistakes and sold the French and Italian businesses.
Expansion in Europe, he added, would be built around a franchising operation so that most of the risks were passed on to franchisees.
Theft of rented cars is a big problem on the Continent, particularly in Italy where one in 10 hire cars are stolen each year.Reuse content