(Bloomberg) -- U.K. drivers may have to pay more than 1,000pounds ($1,200) annually for car insurance next year, a 28 percentincrease, after the government cut a key rate to calculate claimspayments.

The average U.K. car insurance premium rose 1.8 percent inthe first quarter to 781 pounds, according to data compiled byConfused.com and Willis TowersWatson. The cost “could be on course to drive past the858-pound peak we saw in 2011,” Steve Fletcher, head of dataservices at Confused.com, a unit of U.K. car insurer AdmiralGroup Plc, said in a statement.

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The British government in February cut the so-called Ogdendiscount rate used by car insurers such as Admiral Group Plc. and Direct LineInsurance Group Plc. to calculate payouts for personal-injuryclaims. The industry has said it expects that the reduction of therate to minus 0.75 percent from 2.5 percent will result inhigher premiums as it raises the costs for insurance claims thatare settled through the payment of a lump sum. Following industrycriticism, the U.K. on March 30 started a six-week period todiscuss how it will set the Ogden rate in the future.

Insurers including Admiral, Direct Line and Aviva Plc havesaid the Ogden rate cut hit their earnings as it requires them toset aside more money for future claims payments.

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