Surviving the bug – so far, at least – has been a great start to the year for insurance. Now an even bigger challenge lies ahead: how to make money in 2000.

The industry's leaders are making optimistic noises. There is a genuine sense that the cycle is at last turning – even in notoriously unprofitable areas like commercial insurance.

Our preview of the coming year (p8-9) suggests rate rises, stretching from five per cent to as much as 20% for businesses that are failing to tackle risk management.

But because of the welter of new costs that will hit the industry this year – a likely Ogden rise being the major factor – any gains may be quickly wiped out by the increased claims costs. The best to be hoped for, the consensus says, is an appreciable lessening of losses in 2000, with profitability returning next year.

E-commerce will be another significant factor in delaying proper returns. This year promises to be the one in which the internet makes massive strides in the way insurance is conducted. Outside operators like the big retail names, as well as banks and building societies, are set to take on the traditional providers by exploiting the net to massively undercut them.

In a double whammy on rates, the direct writers are also set to re-launch themselves aggressively this year. Rate rises allow them more opportunity to steal business profitably.

In the face of these pressures, the urge to merge will prove irresistible for some insurers. It is highly unlikely that RSA will be an independent company at the end of the year. And if that's the case, then the merry-go-round effect is likely to see at least one other major acquiring a rival. Globally, scale is all, and it is not just the British market that concerns the major insurers, however inconvenient that may often prove for home-based brokers.

The other issue set to dominate this year is the General Insurance Standards Council's launch down the slipway into the swirling waters of the industry. The current consultation period has produced a positive response from across the industry. Clearly, there is a widespread acceptance that the GISC is here to stay – and that it can help raise standards and lift the public image.

However, equally clearly, there is still much work to be done on the nitty gritty details of issues such as costs, discipline, and training. And officials at the Office of Fair Trading, with their counterparts in Brussels, still can't quite provide the OK to the GISC's foundation stone – insurers dealing only with GISC brokers.

These are not insuperable problems, but will need careful handling if the goodwill generated to date is not to be jeopardised.

So a difficult and challenging year lies ahead. Surviving the bug looks looks like the easy part.