The report that Direct Line and Churchill are to drop their prices on low risk motor in response to increased competition (Insurance Times 29 April) should be cause for concern.

The motor market has been on the brink of softening for some months, with underwriters anxiously waiting for the future trends to emerge. The move by the Royal Bank of Scotland board is likely to be the start of a major shift in insurers' rating strategies and the beginning of a descent into a soft market.

It won't be long before Norwich Union Direct starts to lower its prices to maintain its book of business and retain the Hill House Hammond clients that it has coveted so strongly - much to the chagrin of other insurers. And how long before other insurers start to follow suit?

The market seems incapable of learning from the past. Insurers consistently say that underwriting discipline must be maintained and that the drive for market share will not prejudice profitable underwriting.

Once again the indications are that the market cannot hold its nerve when the difficult decisions have to be made.

In six months' time, I see the market heading towards the depths of a soft cycle. With claims inflation showing no signs of declining, the inevitable consequence of falling rates will be falling profits. And I wonder how insurers will respond to this? Will the service they offer to brokers suffer as insurers reign in their costs to compensate?

Ben Davies

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