Record losses of £1.6 billion suffered by motor insurers last year are certain to add further pressure for premium increases, according to a report by non-life actuaries English, Matthews and Brockman.
The actual loss was higher than estimates made by insurance market analysts including Goldman Sachs, who predicted a £1.4 billion drop in profits.
Mike Brockman, an EMB partner, predicted motor premiums would need to rise by another 13% before the market was likely to return to profit in 2001.
Nevertheless, the report based on statutory returns to the DTI for 1998 will make depressing reading for insurers. Underwriting losses across the motor market rose by nearly four per cent in 1998 to more than 23% of earned premiums.
Loss ratios also climbed from 88.5% in 1997 to 92.3% in 1998.
Expense ratios, however, saw a slight improvement but only by 0.5% to just over 30%.
Commenting on the state of the motor market, Brockman said: "Claims continue to increase over and above inflation and there are continuing pressures to further escalate claim costs. These include the proposed rise in general damage awards, a possible reduction in the Ogden discount rate and a continuing rise in the litigious nature of our society."
Some insurers did manage to excel despite the under achieving market.
Among the best performers were Royal & SunAlliance and Norwich Union, which each established a 10% lead over the market, marginally ahead of direct insurers Churchill and Direct Line and other impressive performers, intermediary insurers Norman and Bishopsgate.
Chief executive of general insurance at Norwich Union, Patrick Snowball, said, the company's performance was due to a combination of efficient claims handling and a concentration on margin rather than volume in the motor market.
But he emphasised that new NHS charges and changes to the Ogden discount would lead to substantial increases in motor premiums.
He said: "We are simply running to stand still.
"There has got to be a substantial increase in motor rates, possibly in excess of 20% year-on-year across the market."
