Direct writers such as Direct Line, Churchill and Columbus will lose one third of their motor business in the next five years, market analyst Datamonitor predicts.

Last year, direct insurers controlled 36% of the motor market, but the report says that by 2005 their share will be cut back to just 25%.

According to the analyst's independent report, “virtual” providers are set for the strongest growth. Datamonitor says they will take 9% of the market by 2005.

Datamonitor analyst, Vicki Summerhayes, said the growth of the internet will mean more insurance will be sold online.

She said: “Commoditised areas like motor insurance will become more popular because of the time that people will save using these channels.

“This is particularly so on aggregated sites because they will fulfil the role of the broker.”

But direct writers have hit back at the claims. A spokesman for Direct Line pointed out that the insurer had already written 100,000 policies on the internet since its website went live earlier this year.

He added that it had grabbed 30% of the internet insurance market.

“The report does not say who will be writing online business. It could be the direct writers who will be the ones who are writing most business online.”