Car Insurance Market Set For First Profit In 14 Years

Thu, 13 Mar 2008

Car insurance companies in the UK are looking forward to what looks set to be a historic 2009, with profits expected to be made for the first time in 14 years, according to a new report by market analyst Datamonitor.

Despite continuing to make a loss this year, Britain’s private motor insurance market is expected to make a profit of £30 million in 2009 as income from premiums exceeds the cost of claims, the report revealed.

The industry's lack of profit has been largely attributed to sharp rises in the cost of claims, particularly those related to personal injury, which had forced an increase in overall costs for the market .

Meanwhile insurance companies have struggled to raise their prices due to intensified competition among rival firms battling for market share .

According to Datamonitor, insurers (since 2001) have priced their cover with a focus on expanding their market share, instead of in relation to their increasing claims bill .

This led to the market losing millions of pounds each year, as insurers' costs surpassed their revenue, despite an increase in the premiums charged to motorists .

The report’s author Andrew Haslip said next year could see an "end to a painful 14 consecutive years of losses" for the UK’s private motor insurance market .

"While insurers have needed to raise their prices, they've been unable to do so due to the level of competition between insurers and the fact that the vast majority of consumers buy on price," he explained.

But Haslip added that the sector's profitability was likely to be short lived, with intensified competition expected to lead to the market suffering another loss in 2010.

The report found price was consumers' main criteria when deciding over a motor insurance policy, especially for online buyers - 85 per cent of whom said their choice was mainly based on cost.
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