New entrants could shatter the recovery of the motor market, predict market researcher Datamonitor.

Its report, UK Motor Insurance 2000, estimates drivers will see motor insurance premiums soar by up to 30% over 2000 and 2001 to counter the hyper claims inflation caused mainly by larger compensation awards for personal injury claims. But this apparent recovery, needed to rectify a £1.5bn loss in 1998, could be extinguished by new entrants.

Analyst Vicki Summerhayes said: "Esure, the internet venture of Halifax, and Tesco, through policies underwritten by Privilege, are aiming to be in the top five motor insurers within three years. These have the potential to engender a fresh round of price-based competition, forcing premium rates back down to unprofitable levels."

Datamonitor says young male drivers will find it more difficult to obtain cover.