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

The average U.K. car insurance premium rose 1.8 percent in the first quarter to 781 pounds, according to data compiled by Confused.com and Willis Towers Watson. The cost “could be on course to drive past the 858-pound peak we saw in 2011,” Steve Fletcher, head of data services at Confused.com, a unit of U.K. car insurer Admiral Group Plc, said in a statement.

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

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

Special Reports /

U.K. car insurance premiums may rise 28 percent to record $1,200 a year

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