Motorists seem poised to benefit from a new price war among car insurers after 18 months of big premium rises, say industry experts.
Gentle increases in the cost of cover are expected over the next few months - a significant drop on annual rises averaging well above 10 per cent last year.
Broker AA Insurance's latest index of price rises is expected to show this week that rates on comprehensive cover rose by less than 1 per cent in the quarter from April to July - compared with just under 5 per cent in the first quarter of 2001.
Many in the industry had expected rates to carry on upwards, perhaps by as much as 25 per cent in total this year.
One of the most respected experts in the field, Nigel Munns of B&W Deloitte (formerly Bacon & Woodrow), expects premium increases to be about 5 per cent for the whole of 2001.
'My feeling is that we are going into another price war sooner than the industry would have liked. The last one only finished at the end of 1999.'
The AA's figures for the current quarter are comparable with the middle of 1996, when many tradi tional and new players were putting the pressure on prices to build market share. Even well-established companies such as Royal Insurance (as it was known before its merger) would run two or three different brands of policies - both under its own name and through a direct selling arm.
After the mergers of the late Nineties, there were considerably fewer firms in the market, and those left tended to consolidate their product ranges. After years of losses, the motor market as a whole is expected to be in profit this year.
But 2001 will have one very significant feature in common with 1996 - new entrants.
At the end of this month, Halifax Bank will start selling motor insurance through Esure, the new direct selling arm, which is expected to be unveiled later this month. Halifax has recruited Peter Wood, the founder of the hugely successful Direct Line, to launch and run Esure, which will compete heavily on price, innovation and service.
A second major player is also thought to be planning to enter the market in late summer or early autumn. 'When you get a big new entrant, that tends to destabilise the rates,' says Munns. Wood has said that he wants to attract 1 million motor policyholders within five years - which would represent 5 per cent of the current market of 20 million policies.
Big names such as Direct Line and Halifax tend to restrict their business to standard risks. But a growing number of people - particularly young drivers - are finding that they need to go to specialists. Chaucer Insurance has a large book of non-standard drivers, of whom about 80 per cent are under the age of 40.
The sort of policy they like to handle is the 23-year-old driver of a Porsche Boxster on a provisional licence who pays £4,800 to get cover.
Underwriter Alan Woodcock expects premiums to rise 'very slowly' this year. 'You're never quite sure what is going to happen,' he says. 'It's a very volatile market - and it's solely about price. Generally speaking, the average motorist is not really concerned with the policy, he's looking at his pound notes.'
Munns expects the next price war to lead into another period of consolidation in the market in which it will be dominated 'by a handful of players'. This would continue a trend that has seen the AA's panel of leading insurers contract from about 50 in 1996 to 20 now.
A smaller number of insurers will be able to keep prices at a level that is more profitable for them. But Munns says: 'I don't think they are going to be greedy.'
Munns is concerned about one piece of possible fallout from rationalisation in the industry
'We could end up with a sub-class of people who end up uninsurable,' he says. These could be the very young, driving flashy cars or people who live in areas with higher crime rates.
In the meantime, some consumers and insurers could find they are in for a tough time.
The collapse of motor insurer Drake last year has been followed by the liquidation this summer of Independent Insurance, which provided motor as well as household cover.
At the end of June, the online broker Screentrade was closed down by its owner Misys.
Rebecca Hadley of AA Insurance is predicting a price war in the online sector but expects the survivors to be those who are already well-known for their brand names.
If you are buying your insurance now, you could still find that your insurer wants to charge you as much as 10 per cent more than last year to cover the price hikes that have taken place in that time.
You may be able to cut the cost by visiting a broker, shopping around and going online. Sometimes it may be worth asking for quotes from a couple of brokers since they do not all have relationships with every insurer in the market.
It could be that the cheapest policy on the market for you is not one that your usual broker includes in his or her panel.
Abbey National has produced some tips for getting good value insurance - including taking an advanced driver's test and not insuring the car for business use if you just use it for social and domestic driving. (Driving your car to work does not count as business use.)
Motorists who want to save costs can also think about other terms of their policy.
A higher excess rate will cut the cost of premiums. A car that is insured for 'any driver' will also be more expensive than a more restricted policy.
Whatever happens, it may be worth watching these events in the industry. A bit of knowledge could help you find a cheaper premium or a better policy.
