At last some real signs that customers' expectations are being managed. We warmly welcome the news that Norwich Union is significantly increasing its personal car premiums in a bid to drive up rates across the industry. But is this really an end to the rot infecting our industry - should motor insurers be celebrating just yet?

The motor market has shown lemming-like tendencies, repeating mistakes of the past and allowing the pricing trough to throw the market off the cliff. The background of rising claims inflation especially in the third-party property damage sector has been a spectre that the market really should have learned not to ignore.

For years now Link and Zenith has been calling for the industry to stop the rot.

We warned early on that sliding or stagnant rates coupled with rising claims costs was unsustainable, and that the inevitable price war was in no one's interest. While innovative methods of reducing costs have gone some way to helping the industry make any form of profit, for some this has been done at the expense of sound underwriting. Ultimately, the industry could not survive this trend and it is the customer who sadly will now suffer the pain of the need to redress the balance.

As the green shoots of pricing recovery emerge, a number of questions regarding the practical application of price hikes spring to mind. How quickly will NU's new rates be applied? When will policyholders see real year-on-year increases on their renewals, and how many will look for an alternative insurer? Significant increases will result in ever more shopping around, which undermines customer loyalty towards and confidence in motor insurers generally.

NU says it is being selective about the level of increase needed in each sector, with smaller increases for more 'valued' customers, and a bigger increase for the higher risks. But which customers and markets does it value, and how should the industry prepare itself for the fall-out? While we agree that it is sensible to hike the prices for the bigger risks, will this result in 'unusual' risks, which are generally branded by the larger insurers as high risk, also suffering unnecessarily?

Will this business defect to the smaller specialist players, for example? Link and Zenith operates specialist schemes - because we understand the nature of those risks generally considered more unusual or generally high risk by others, we are able to provide them with innovative and often market-leading products at a competitive price.

However, before the motor industry breathes a sigh of relief, there are a number of factors that need to be considered and threaten to upset the celebrations. The next waves of acquisition cost savings are being found on the internet; will this be taken into account when setting the new market price, and might it suppress the pace of recovery, for example?

They key question is whether others will follow suit. If Royal Bank of Scotland and Royal & SunAlliance follow this lead then the market will move too and the recovery might be quick. If they don't then we will be in for a difficult 2007 and should put away the fizz for now.

Steve Tidd
Chief executive
Zenith Insurance