Motor insurance underwriting will return to being a loss-making product after one year in the black, forcing premiums to rise, according to EY.
The firm's annual UK motor insurance forecast suggests that if companies are to achieve an underwriting profit, the amount of reserve releases would need to hit exceptional levels of 14% and, therefore, in the long term, premiums will inevitably be forced to rise.
Catherine Barton, EY's head of retail property & casualty actuarial, EMEIA, said: 'Repeating the net combined ratio (NCR) of 98% in 2013 looks nigh on impossible for 2014.
'Insurers are experiencing continued premium reductions while claims inflation - although less rampant than in recent years - is still tracking close to inflation. This can't be expected to go on forever, making a premium rise in the near future inevitable.'
The forecast for an NCR of 109.3% in 2014 still requires insurers to release 5% from their prior year reserves, which is 2.2% less than in 2013.
Barton added: 'Reserve strength is key to understanding how much of a buffer insurers have to support their current year underwriting performance, and whether they can present positive results to their shareholders.
'The high reserve releases seen in 2013 were driven by just a small number of insurers rather than the whole market, and if similar high levels are not seen in 2014, the overall market performance could be even worse than our predictions.'
EY predicts an NCR of 114.5% in 2015, which will see further loss-making in motor insurance underwriting and highlights a real move away from any possible profit trend.
Elsewhere in the forecast report, EY said premiums continued to fall, by 6% year-on-year. The forecast for claims inflation is 1.3% in 2014 accelerating to 2.6% next year. EY attributed this to sustained bodily injury claims inflation, which mainly affect larger claims.
'In such an already competitive market, the proposed Competition and Markets Authority changes are likely to put pressure on profitability. Further, the CMA's focus on add-on product sales will likely pile pressure on insurers to make their money from underwriting rather than from add-on products,' Barton said.
'Ultimately, motor insurers still need to make money. Sooner or later underlying price rises for consumers will be inevitable for the market to be sustainable.'