Car insurance premiums could rise by up to 10% in the coming year, says AA

Prices have been falling over the past three years but the underlying trend appears to be upward

The AA's British Insurance Premium Index said the average quoted car insurance premium was £540.26 in the final three months of last year (Getty)

Car insurance premiums are set to rise by up to 10 per cent by the end of the year, according to AA.

Despite prices falling in the last three years due to a crackdown on fake whiplash claims and inflated hire car and repair bills that padded out premiums, the AA said that current rates may be as good as it gets for motorists as the underlying trend appears to be upward.

Motorists have been benefiting from cheaper insurance costs as well as lower petrol prices after a survey showed premiums are down by 10 per cent on a year ago.

The AA's British Insurance Premium Index said the average quoted car insurance premium was £540.26 in the final three months of last year, little changed on the previous quarter but sharply lower than 12 months earlier.

However, the AA warned that things could be set to change.

Janet Connor, managing director of AA Insurance, said: "Some insurers may have lost business by increasing premiums, leading to a 'year-end sale' to boost market share, so car insurance is still very good value."

But she added: "Nevertheless the underlying trend is upward, although I think premiums will struggle to rise past 10 per cent by the end of the year."

The AA believes industry price pressures have done more to force down prices than recent Ministry of Justice moves to cut false and exaggerated personal injury claims.

It points out that the number of personal injury claims is now higher than before recent reforms were introduced. Over the 12 months to the end of March 2014, the average number of claims was 66,000 per month. They now stand at an average of nearly 71,000 per month.

Ms Connor said: "As a result, current premiums are simply unsustainable."

But she welcomed the Government's next set of proposals which will ban personal injury claims being settled without a medical assessment taking place.

Ms Connor said: "This would put off those looking for an easy cash win but would not discourage those with a genuine injury."

Last September the competition regulator the Competition and Markets Authority (CMA) said it would ban exclusive pricing deals between motor insurers and price comparison websites.

It said these deals prevented insurers from making their products available more cheaply elsewhere.

The AA said that the CMA proposals had already led to discounting and special offers by some insurers.

But Ms Connor added: "Changes proposed by the CMA could make it more difficult for customers to find the most competitive premium. They'll have to check different comparison sites as well as direct insurers to find the best deals."

The AA also found that home insurance premiums were largely unchanged, with the annual cost of a policy for buildings and contents rising just 5p over the last three months to £163.06.

The insurer said home premiums have fallen 5.3 per cent on a year ago, adding that prices were close to 20-year lows after levelling off from a long-term downward trend.

Additional reporting by Press Association