Although I agree that the motor market will eventually produce stable and sustained profitability, I fear that we still have some pain to suffer.

The insurance cycle is price-driven and, while the significant increases of late1999 to mid-2001 will improve profitability, we now appear to be entering a phase where premium increases are falling below the rate of claims cost inflation with a negative effect on profitability.

Insurers continue to contain accident repair costs, but the frequency and severity of bodily injury claims continues to run significantly ahead of headline inflation.

B&W Deloitte forecast 2002 claims inflation at 6%.

However, the figure could be higher in the event of legislative changes such as the Ogden discount rate being reduced to 2% (a potential cost to the industry of around £200m or 2% on ELR).

The Datamonitor report comments on the 50% growth achieved by Direct Line during 2000.

While the business has clearly been in growth mode, this figure is misleading because of a change in the financial year end from September to December resulting in a 15 month year, adjusting for this effect would reduce growth to around 20%.

Nigel Munns
B&W Deloitte

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