The motor insurance market is expected to show a return to profit in 2002, according to a Datamonitor report.
The Datamonitor report, 'UK Motor Insurance 2003', concluded that despite heavy losses in recent years, the sector is expected to benefit from strong premium increases introduced over the last few years.
Underwriting performance for the motor market has continued to improve - there was an 86.6% fall in underwriting losses in 2001. The report concluded that premium increases and improved risk selection improved the fortunes of motor insurers.
However the report sounded a note of caution, predicting that the market will revert back towards price-based competition within the next year and that by 2004 insurers will incur losses again.
Datamonitor financial services analyst Fiona O' Regan said: "There are a number of factors driving this return to unprofitability. Firstly the industry's memory is short and despite the losses incurred only a short time ago, once profitability is reached, capacity in the market increases and thoughts turn to market share.
"It only takes a small number of players to start competing on price to drive the market back to price-based competition. Insurers, keen to maintain their share of the market, start to price more competitively, which results in insufficient income to cover costs."
