Motorists face double-digit increases in their car insurance premiums this year, insurers and brokers have warned.

AA Insurance estimates premiums will rise by between 10 per cent and 11 per cent during 2009. Some insurance companies claim premiums could soar by as much as 20 per cent as insurers struggle with the rising cost of fraud and personal injury claims.

Insurers currently pay out around £105 in costs and claims for every £100 of premiums they take in. This was not a problem when the industry was able to make up the difference by investing premiums in the stock market. But falling share prices have left a major hole in insurers' profits.

Premiums have already been rising as the financial turmoil bites. AA Insurance said the average cost of the most competitive comprehensive motor insurance premiums had risen by 8.7 per cent during the year to the end of September to average £486.45. It is thought premiums jumped by another 3 per cent in the final three months of 2008.

Claims costs have increased steeply in recent years, particularly personal injury claims, due to rising medical costs and the increasing number of “no win, no fee” claims firms. The cost of personal injury claims and the legal costs associated with these, have soared by 22 per cent during the past year. Around 430,000 claims for whiplash were made last year, leading to a total compensation bill of £1.9 billion.

It is estimated that injury claims add around £66 to annual insurance premiums for all drivers.

Fraud costs have also increased, by around 17 per cent during the past year, adding around £30 to the cost of all insurance policies.

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