Revealed: where your eye-watering car insurance premiums really go

Personal injury claim costs now make up the largest proportion of motor insurance claim costs, according to the Association of British Insurers (ABI).

 In its report 'Lifting the bonnet on car insurance – what are the real costs?', it says whiplash claims alone account for 20 per cent of premium income. The report analyses where the premiums paid by the UK's 23.5 million motorists go.

The ABI claims the report 'dispels the myths of motor insurance' and gives a progress report on what the industry is doing and what needs to be done to bring down the cost of motor insurance.

The report breaks down what motor insurance premiums pay for: • 29 per cent is paid out on repair costs and replacement vehicles • 20 per cent on whiplash claims • 15 per cent on personal injury claims under £500,000 • 9 per cent on personal injury claims over £500,000 • 3 per cent on uninsured drivers • 2 per cent on theft • 26 per cent staff and overheads.

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Nick Starling, the ABI's Director of General Insurance, said: "Despite rising costs linked to excessive legal fees, and whiplash, insurers are determined that customers get the best insurance deal. "That is why the industry has successfully lobbied government to introduce reforms to streamline the compensation system and drive down inflated legal costs, is urging action to tackle the whiplash epidemic, and has developed proposals to improve young driver safety, which if implemented will significantly reduce their insurance premiums."

The ABI has over 300 members, which together account for around 90 per cent of premiums in the UK domestic market.