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By Richa Naidu
(Reuters) - Shares in British insurers jumped on Wednesday after motoring group AA Plc said the price of car insurance had risen for the first time since early 2012 due to a rise in fraudulent claims.
The AA said third-quarter motor Shoparound premiums – an aggregation of the five cheapest premiums – rose 1.2 percent to 531.33 pounds ($852.25), compared with the previous quarter.
"This suggests that while there continues to be keen competition amongst the cheapest car insurance providers, claims pressure is pushing premiums up," the AA said in a statement.
Though the figure is still 14.4 percent lower than it was a year earlier, investors in motor insurers cheered the numbers. The industry has grappled with nearly two years of plunging prices due to fierce competition brought about by price comparison websites.
Shares of Britain's largest car insurer, Direct Line Insurance Group, were up 3.1 percent, leading the FTSE 350 non-life insurance index up 1.5 percent at 1046 BST.
Admiral Group's shares rose as much as 3 percent in morning trade, while shares in esure Group rose as much as 7.5 percent.
Car insurers have also been cutting premiums to adjust for government reforms, that came into effect in April 2013, intended to curb fraudulent and exaggerated claims, particularly whiplash injuries.
However, the AA said claims management companies and law firms may have found loopholes around the reforms as many insurers have reported a surge in lower-value 'cash for crash' claims, where people deliberately brake to cause a vehicle to crash into the rear of their car.
Direct Line and esure declined to comment on whether they had seen a rise in such claims, while Admiral could not be reached for comment.
According to data from the Association of British Insurers (ABI), an insurance body whose members manage assets worth a quarter of the British economy, fraudulent motor insurance claims are the most expensive and common types of claims.
Fraudulent motor insurance claims spiked 34 percent in 2013, the ABI reported in May.
(1 US dollar = 0.6234 British pound)
(Editing by Saumyadeb Chakrabarty)