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The cost of car insurance is rising at its fastest rate on record, research reveals today.

Average premiums for comprehensive motor cover jumped by 5.6% in the three months to the end of September, the biggest increase since the AA first started monitoring the market in 1994 (see the Car Insurance guide).

The annual rate at which the price of cover is rising also hit a new high of 14%.

Yet you can take steps to slash the cost. By following the MoneySavingExpert.com system, a grandmother from Kent paid just 96p for a year's car insurance (see the 96p car cover MSE News story).

Some have also been PAID up to £67 to take out home insurance (see the Home Insurance guide).

The AA says the average cost of comprehensive car insurance had risen from £721 a year ago to £821 now.

It warns further increases are likely, as car insurers are currently paying out an estimated £110 in claims and costs for every £100 received in premiums.

It adds the main factors fuelling the increases are the rising cost of personal injury claims and fraud, which cost the industry £9.6 billion and £1.9 billion, respectively, last year.

Young drivers have been hardest hit, with premiums for this group soaring by 9.3% during the third quarter, and 17.6% during the past year to an average of £1,059.

The cost of buildings insurance also rose for the sixth consecutive quarter during the three months to the end of September, increasing by 1.6% to an average £227 – the highest level on record.

Premiums for contents cover rose by 1.8% over the same period to £125, although it remains slightly cheaper than this time last year.

How to slash car and home insurance costs

Step 1: Combine the power of comparison sites. These zip your details to a host of insurers' and brokers' websites in seconds, scraping their data to report back the cheapest. No site lists every provider so the key is combining searches to give yourself the widest range in the least time to find the cheapest policy of those that contain your required cover.

By using just the top comparison site you'll search 97 providers, but add three more and, in minutes, you get search another 51 (full analysis in the Cheap Car Insurance guide). Also note Aviva and Direct Line do not appear on comparison sites.

Step 2: Grab cashback. Once you know the cheapest provider, check whether you can grab any money back via a cashback website. These pay a cut of their commission if you click through to insurers' or brokers' sites via them. (see the Top Cashback Sites guide).

Step 3: Remember next year. Just because you got a super-cheap quote this year, doesn't mean you will next year. So diarise a note six weeks before renewal so you don't up paying your insurer's expensive renewal price.

Comparison sites not for everyone

If you have a medical condition, have a high claims history, if you are sharing a home with friends, or if you have any other complex issues, comparison sites may not offer the cheapest policies.

If you can't find a decent quote, use a broker. You can normally find one via the British Insurance Brokers' Association (Biba) website (link below).

Further reading/Key links