The motor insurance market made a £179 million loss last year on revenues of £8.5 billion. However, the real picture was even worse. Insurers actually lost £1.03 billion. Reserve releases were activated and reduced the figure.

These reserves, which have been built up over a long time, have been released at a huge rate during the past few years. Now they are close to running out.

What happens then? Insurers will have to reveal higher losses to shareholders or they will be putting more pressure on the supply chain to reduce costs.“Bodyshops will come to us to increase labour rates and they will be disappointed,” said Rob Smale, claims director at Fortis.

Much of the problem is premiums. In 2003, the average comprehensive premium was £378.In 2007, it was £365. 

However, third-party costs have risen 30% in three years, along with the frequency of third- party injury claims.

The blame is laid at the door of credit hire companies chasing injury claims and website aggregator sites which have made the market even more price competitive. 

They have turned insurance into a commodity. Some insurers, like Direct Line, have made a point of not signing up while others are now reconsidering their position.