Away from the financial markets, and assuming that we will won’t all be selling out cars next week because of a 1929-type stockmarket collapse, car insurance premiums look set to rise.

This is the view of Defaqto insurance consultant, Mike Powell, whose recently published report  on the car  insurance market, “Difficult Times Ahead,” comes to the conclusion that the current, the highly competitive level of car insurance premiums is simply unsustainable.

In 2007, insurers made a loss on motor insurance for the thirteenth consecutive year. Insurers took in £10.5bn in premiums, but with £8.2bn paid out in claims, and with the cost of administration and commissions added on, insurers made a loss of £263m last year.

According to consultants, Deloitte, insurers had to release £1bn from prior year reserves in order to stem these underwriting losses.

So why have insurers allowed this state of affirs to continue for so long? The answer, according to Mike Powell is that car owners are great for selling other insurance products to.  If you own a car, you will probably have other things you want to insure such as your house and its contents, travel, pets and so on.

Another reason is that car owners are very cost sensitive and are willing to shop around online to get the cheapest premium.  Aggregator web sites have enabled car owners to compare multiple quotes, making it difficult for insurers to raise their premiums.

However, the situation may have reached a tipping point because of the rise in personal injury claims which is costing insurers a small fortune.

Powell says: “If it continues like this, how long will insurers be able to stay in the market?

“Providers will either have to raise their premiums or withdraw from the market. In any case, cheapest is not always the best. It’s only whenyou come to make a claim that you know whether you policy is any good.”

Visit Defaqto’s unique car insurance comparison tool:
http://www.defaqto.com/consumer/insurance/motor/compare-car.aspx

Read the Defaqto guide to car insurance:
http://www.defaqto.com/consumer/insurance/motor.aspx