Profits hope next year for motor insurers

Motor insurers, hit by soaring claims due to the growing influence of 'no win, no fee' lawyers, are set for a collective loss of 1bn ($1.6bn) this year, after a record 1.6bn deficit in 2009, Deloitte said.

However, the sector will swing back into the black next year provided it can sustain a steady rise in car insurance prices that began in late 2009, Deloitte added.

"Without the support of prior year reserve releases, the only way the industry will return to profit is with sustained rate increases through to 2011," said Deloitte insurance partner Ian Clark.

"The challenge for motor insurers will be to do this and retain their customers."

Car insurers began putting up their prices late last year to protect their profits from a double whammy of higher claims and dwindling investment income amid rock-bottom interest rates. They had previously cut or frozen premium rates for the best part of a decade because of intense competition.

David Heaton, head of the Deloitte Northern insurance practice, said: "Motor insurers are in a situation where they are not making money. Last year's results were poor across the sector. The motor market needs to get the issue of personal injury claims under control."