Norwich Union is bracing itself to lose up to 10% of its fleet business as it begins to increase rates to bring its book into profitability.

The insurer said it would start to raise its fleet prices during the coming months to avert the slide into unprofitability of its fleet business.

NU's head of commercial motor underwriting, Kevin Edwards, said the insurer did not expect to make a profit in its fleet business either this year or in 2007. It made a “borderline” profit in 2005.

“Market rates are 3% lower than they were last year, but taking into account claims inflation these reductions are much larger,” said Edwards.

“To make a profit in 2008 we need rate increases of above claims inflation this year.”

Claims inflation in the fleet market is currently running between 6% and 7%, according to NU.

Edwards called on other fleet insurers to follow NU's lead on pricing, but he admitted that losing as much as 10% of the book was “a possibility”.

NU is one of the largest fleet insurers in the UK market.

In 2004 its commercial motor book was worth £680m in premium, with fleet being the largest segment.

Edwards said: “The signs are that insurers are starting to feel the pain of accounts that are losing money. It is very likely they will lose money this year. I anticipate they will follow our lead, but it is difficult to predict the outcome.”

Alex Always, chief executive of broker Jelf said: “From our point of view we need to know whether Norwich Union has enough clout to move the market. We welcome what NU is doing
to show financial acumen, we will just have to explain the cycle to our clients and leave decisions to them.”

Stuart Stead of Yorkshire broker Business Insurance Solutions said the fleet market continued to be “very competitive”. He said he had received a renewal quote for an eight-vehicle fleet risk of £5,000. The expiring premium with only seven vehicles was £6,800.

Stead said he expected other insurers would increase rates in line with NU but added: “There is always one that holds back.”

Rival fleet insurer Royal & SunAlliance declined to say whether it would follow NU's lead and increase rates.