Although car insurance premiums seem to be rising all the time, in fact almost by a fifth in the last year alone, the car insurance companies themselves have witnessed dramatic reductions in their annual profits and because of this they are planning to increase the cost of their premiums even more. So, if the average amount that most motorists have to pay for insurance has gone up so much, how could it be possible that the insurance providers aren't pocketing the difference?

The main reason for the rising cost of car insurance premiums has been attributed to the dramatic increase in people who have suffered injuries in road accidents taking legal action and suing insurance companies by filing personal injury claims.

Administrative costs are also to blame for this loss of profit alongside the fact that insurance companies are struggling to find suitable finances to underwrite their policies which effectively means that they need more money in order to consider themselves financially viable.

With a limited success rate, a number of insurance companies have opted to try to get their customers to switch their cover to fully comprehensive cover, but recent studies suggest that over a quarter of drivers are planning to reduce their amount of cover to third party, fire and theft in order to ease their own financial obligations. However, this will mean that insurance providers will stand to incur further losses which will have a knock-on effect on car insurance premium costs across the board.

Owing to the competitive nature of the car insurance industry, an ever increasing amount of drivers choose to change their insurance policies on a regular basis in order to take advantage of the never ending choice of promotional discounts offered by rival insurance providers. This in turn has made it even more difficult for insurers to make a profit. In fact, those with car insurance cover are twice as likely to switch their providers than those in search of better home insurance deals.

One approach towards increasing profits, which has had little success from the point of view of insurance providers, is to try to get customers to participate in Payment Protection Insurance schemes, though this has proved to be an unpopular option as far as consumers are concerned as they only see it as an extra expense.

On the whole, the future appears to be somewhat bleak for insurance providers on the whole and it is becoming increasingly difficult to attract new customers whilst offering the same level of service to existing ones. During the next few years we will inevitably see more and more insurance companies going out of business if a satisfactory solution to the problem cannot be found.