As the UK plunges into deeper economic uncertainty, which the government is likely to admit is more serious and could last longer than they had predicted, it is worth considering how motorists fare in respect of their car insurance premium increases and the causes.

For the first time since the credit crunch started taking its toll on the country’s economy, last week Prime Minister Gordon Brown and Bank of England Governor Mervyn King admitted that country was heading for a recession. This came barely weeks after a major bailout had been given banks and the government was expecting the recipients to reciprocate by softening tough lending conditions to small businesses and or cutting interest rates.

Although the UK government downplayed the crisis and its general impacts, sounding very optimistic that things would get better soon, a few top officials did not fail to make their pessimism about the economy public. The central bank’s governor for financial stability, Charlie Bean was to admit on October 24 in an interview with the Scarborough Evening News that the turmoil in the banking industry was the worst ever.

Now that we know we are facing a very tough and formidable crisis how do we respond so that we don’t, in the end, drop down and out completely?

In the car insurance industry it is clear that drivers have been facing rising costs of insurance. A report earlier in the week said that on average they were paying an extra of £50 on what they paid last year, making an average car insurance premium £725 per year.

Figures collated by AA also showed that apart from the increase of 7.5 per cent to an average premium, British drivers have equally seen a rise of up to £39 on their annual comprehensive car insurance within a year.

Factors influencing rise in car insurance premiums

Irrespective of the credit crunch car insurers argue that premium increases were due to a number of factors that include rise in claims made by motorists, with personal injury claims topping the list. If the pace at which personal injury due to traffic accidents claims are increasing is maintained, market analyst Datamonitor suggests that by 2012 the industry would be paying out about £10.9.

To motor insurers in Britain this issue of personal injury claims is very threatening. AA Insurance director, Simon Douglas clearly paints a grim picture in the following words: “…for every £100 taken in premiums, more than £105 is paid in claims. Insurers are particularly concerned about increasing legal costs and personal injury claims which last year rose by 22 pc.”

Even as the problem of rising premiums caused by an increasing number of claims is impending, other factors that could make drivers pay more to insure their vehicles continue to surface.

Also this week were flood warnings sent across the country and motorists were particularly reminded to watch out for the worst. Reason is that flooding could seriously damage a vehicle’s bodywork and engine. Two things could result from this development. One, it could mean insurers would face more claims from motorists and this would result in costs being passed on in the form of premium rises. Two, insurers could decide to write off affected cars and refuse to insure them. Either way, motorists would be at the receiving end.

In order to avoid compounding their problems now and even in the future, drivers could help minimise their expenses by adhering to wise words of advice. Avoiding places or activities that would wear down their cars and shoot up their premiums could be a great help.