The private motor market's return to profitability has stalled

The story of the recovery of the private motor market took another twist this week with the news that rates had fallen in the first quarter of 2008.

According to the AA’s British Premium Index, average comprehensive motor premiums took a slight downturn in the first three months of the year, falling by 0.5% compared to the end of 2007.

The levelling off of rates does not bode well for the motor market, which has been loss making for some years, as competition had kept premiums too low.

Last year’s rate increases had raised hopes that a recovery was starting, albeit slowly. Premiums had been increasingly steadily during last year, rising by nearly 6%.

But in order to return to profitability sustained increases are required. A fall in rates in the first quarter of the year is not good news.

The AA calculates that an annual premium increase of 20% is needed if the private motor market is to become profitable by the end of 2009.

On the basis of the market’s performance in the first three months of the year, this would seem unrealistic.

The AA points out that March is a key month for motor business, so it is perhaps not surprising that rates increases have been held back during the period. It is expected that increases will begin to be seen during the rest of the year.

With 2009 looking as if it will be another loss making year, the market may have to wait until the end of 2010 to open the champagne.