Consumers will continue to benefit from fierce competition in the car insurance market, despite fears of a widespread hike in premiums, according to a report yesterday.

Financial research company Defaqto said drivers would still be able to find competitive deals, as competition intensifies in the £7.4 billion sector.

That is despite motorists being warned that car insurance premiums were at the start of an upward trend, after Norwich Union announced price rises of up to 16 per cent in September.

Firms trying to both raise premiums and maintain market share would find it "almost impossible", Defaqto said.

Its report, Motor Insurance in the UK - Adapting to Survive, said average premiums, particularly for comprehensive cover, were almost static.

It pointed to the fact that two-thirds of insurers give customers discounts for buying insurance online, with many firms also offering cash-back deals through aggregator websites.

The average cash-back for buying through Quidco is £54 and for edeals UK customers typically receive £20.

Brian Brown, Defaqto's head of general insurance research and author of the report, said: "The intense amount of competition in the market at present is keeping comprehensive premiums from rising, despite well-reported industry views that they must increase.

"With the internet, it is now so easy for customers to shop around and so many insurers are still giving introductory discounts, cash-backs or guarantees to beat other quotes, that there is little, if any, need for customers to stick with their existing insurer when faced with premium increases.

"The dynamics of the market at present may make it almost impossible to both raise premiums and hold market share."

He said the key as to whether or not premiums would ultimately rise was held by the Royal Bank of Scotland, which owns some of the biggest and best-known insurance brands like Churchill, Direct Line and Privilege.

If it does not hike prices, others will struggle to push through increases, he said. Instead, some companies might follow the lead of Legal & General and pull out of the car insurance market altogether.

However, the report warned that insurers were bolstering their margins through increases in fees for a range of transactions, such as change of address or policy cancellation.

Around 62 per cent of insurers now charge for policy adjustments, 35 per cent charge for duplicate documents and 66 per cent charge to cancel a policy. Fees can be as much as £75 for cancelling a policy, the report said.