The average UK motor insurance premium has hit a new record high of £484 ($789.60) following the Governments’ decision to cut the personal injury discount rate and increase the personal premium tax, according to the Association of British Insurers (ABI).

The 11% increase compared with the second quarter of last year is four times the rate of inflation, and the biggest year-on-year rise since the ABI began tracking premiums for private cars in 2012.

The Government recently cut the personal injury discount rate from 2.5% to -0.75%, the lowest in any advanced economy.

The insurance premium tax went up to 12% from 10% on June 1.

ABI Director-General Huw Evans says the premium increase shows the importance of the Government advocating a new framework for the discount rate and halting further increases to the insurance premium tax.

“The UK is one of the most competitive motor insurance markets in the world, but the unprecedented increase in claims costs is driving up prices to record levels,” he said.

“Most younger and older drivers are likely to face increases even higher than this, hurting people who can least afford it.”

Mr Evans says the increases will likely cause reinsurance premiums to increase on renewal, which will have a flow-on effect for customers.