Insurance set to rise after US terror attacks

Consumers are being warned to expect hikes in the cost of house and car insurance following the US terrorist attacks.

AA Insurance Services say the high cost of claims and volatile stock markets are all likely to lead to price increases.

The estimated cost of the attacks to the insurance industry is between $30bn and $50bn.

The cost of reinsurance is expected to increase 10-fold.

Companies' revenue from equities is also likely to be hit by stock market volatility, making it difficult for them to recoup the money lost paying out on claims.

Kerry Richardson, managing director of AA Insurance Services, said: "I have never before seen the three overall drivers (of the insurance market) negative at the same time to this extent.

"If you take the three factors together it puts a very negative view on the health of the sector, when they wash through I expect the underlying prices to go in one direction."

He added that while it was difficult to predict how steep the price increases would be, consumers were likely to see premiums start rising during the last part of the year.

During the three months to the end of September comprehensive car insurance rates went up by 1.89%, more than double the 0.89% increase of the second quarter but well down on the 4.4% jump in the first three months of 2001.

Year-on-year the cost of insuring a car has soared 14%, from an average of £580.85 this time last year to £657.94 now, although the cost can be knocked down to around £430.79 by shopping around.