Motor premiums set to increase

Motor insurance premiums look set to edge up in the coming year after insurers said yesterday that competition for business meant that they risked losing money on the policies they sold.

But holders of household insurance policies were offered a small ray of hope that the downward trend in the cost of their cover is set to continue, the Association of British Insurers said.

John Carter, chairman of the ABI, the industry's trade body, said: "General insurance policyholders have received major benefits from an extremely competitive insurance market over the past two or three years in terms of lower premium and improved cover. I am not sure that can continue."

The ABI's warning of higher prices for car drivers came as it released figures showing that the industry made overall losses of pounds 34m in the UK market last year on premiums of pounds 5.94bn. This compared with a pounds 297m profit on income of pounds 6.37bn in 1994.

The trade body yesterday attributed the bulk of the premium fall to the scramble for business among insurers.

On the non-motor side, including household insurance, profits also dropped substantially in the UK, down to pounds 403m in 1995 from pounds 950m the previous year.

A large slice of the profits downturn followed the cold winter weather, mainly in Scotland, which has so far led to claims worth pounds 320m. Many more claims, mainly for business interruption, have yet to be determined.

Mark Boleat, director general of the ABI, said yesterday: "Premiums fell in many other classes of business, while insurance companies achieved good profits.

"Loss prevention measures played a major part in achieving this satisfactory position. However, insurance is sometimes an unpredictable business, as shown by the significant increases in subsidence and winter damage claims."

Insurers have tried to smooth out some of the losses by including much of the payments made so far in last year's accounts, where they have been buried by large profits reported at the time. But some said yesterday that if last year's hot summer repeats itself, subsidence claims will rise even further.

Separately, life insurance companies reported an end in sight to the poor sales that have bedevilled the industry in the past three years.

Net premium income in the UK for life and pensions business reached pounds 44bn, up 3 per cent on 1994.