Good news on car insurance premiums front?

There could be good news on the car insurance premiums front. That's because a new report from market analyst, Datamonitor, claims the motor insurance industry is set to make a profit in 2009 for the first time in 14 years. Often, motor insurers try to recover losses by hiking premiums. Hence, so the theory goes, if the motor insurers are making money there is less need to raise premiums.

The motor insurance industry is forecast to make £30 million next year as the predicted income from premiums outstrips claims made by motorists.

More worrisome however - and a major contributor to its losses - has been the surge in the cost of personal injury claims. And insurers, while incurring these costs, have found it difficult to pass them on to customers in the form of higher premiums - due to cutthroat competition in the market. Indeed, since 2001, claims the report, a major objective for insurers has been to price cover at a competitive enough level in order to gain market share from rivals.

Report author Andrew Haslip is quick to point out that the sector's profitability is likely to be a short-lived affair as even fiercer competition leads to a resumption of losses in 2010.

AA Insurance is less optimistic, describing the profits forecast in the report as unlikely, claiming that to reach profit by 2009, the industry would have to raise premiums by at least 20% over the next two years - again unlikely.

As a measure of the industry's losses the AA says that in 2007 for every £100 received in premiums, £112 was paid out in claims.

For consumers it's an entirely different matter - AA CEO Andrew Strong saying that premium rises are being kept in check as buyers go online and shop around based on price.

Strong adds that so far this year industry premiums haven't risen by anything like the amount that would make the industry profitable. "It remains a very volatile and competitive market, and we don't see that changing in the immediate future."