According to research, the industry has not seen profit for 14 years due to an increase in claims, including personal injury and accident claims which have increased overall costs for insurance firms. Now though, insurance premiums have become so high that next year they will account for these losses and the market will see serious growth. Intense competition has thwarted any attempts to raise insurance premiums until now, but the researchers have said that since 2001 insurers have been more interested in expanding their market share than addressing the accidents claims bill which damages their profits.

An article in The Herald explored the issue and Andrew Haslip who was involved in writing the report, said: "2009 could be a historic year for the private motor insurance market, putting an end to a painful 14 consecutive years of losses. While insurers have needed to raise their prices, they've been unable to do so due to the level of competition between insurers and the fact that the vast majority of consumers buy on price."

He also told the paper that this profitability would not last as competition peaked again and insurers were forced to lower their premiums due to public demand, he predicted that a year later the companies would once again be trading at a loss. However, despite these revelatory research findings the AA have issued a statement that they believe these predictions to be inaccurate.

In fact, the CEO of the AA recently said that the cost of claims is actually showing no sign of stopping or lowering and that the cost of damage to vehicles is rising by approximately 5% each year. Additionally, he said that accident claims are increasing by 10% each year." So even as premiums rise so will the costs insurers face. He described the situation in an article online: "It remains a very volatile and competitive market and we don't see that changing in the immediate future."

According to The Herald Tribune, "Royal Bank of Scotland , the country's biggest motor insurer, and others have indicated they see the tide turning, but rivals like Admiral warn the pace of change is still very slow, with competition from price comparison websites eating into insurers' profits." So it's clear to see that the only way for insurance companies to claw back profits is to raise prices and also that consumers will not let that happen.

For the large majority of customers the policy and insurance company they choose depends on the price of the premium, so to remain attractive to these customers' insurance companies must strive to under-cut each other, essentially trading at a loss. The popularity of price comparison websites where customers can browse for the best insurance deal and the ease with which accident claims can presently be made against companies means that the industry is in trouble until litigation laws change or consumers have an incentive other than price on which to base their decisions.

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