UK motor insurers: despair the market Meerkats, opera singers, toy dogs and telephones on wheels. UK insurers leave no stone unturned when it comes to finding ways to market their products. You have to wonder why they bother. According to Ernst & Young, the motor insurance industry will not make underwriting profits either this year or next. Although the combined ratio of claims to premiums fell from 122 per cent to 106 per cent in 2011, the industry will not manage in the short term to push it below the 100 per cent mark that would signify profitability. That is no surprise - it has failed to make an underwriting profit since 1994. A combination of claims inflation and the marketing menagerie that keeps customers shopping around is to blame. The insurers" response to the dismal underwriting environment is to look for profits elsewhere. For years that meant relying on investment returns to keep the show on the road, but finding good homes for cash is tough these days. The other avenue is to push on ancillary revenues such as referral fees from personal injury lawyers. At Admiral, the only pure-play motor insurer on the UK stock market, ancillary income accounted for 58 per cent of UK pre-tax profits in 2011. But here too there is pressure. The Office of Fair Trading recently launched an investigation into the insurers" relationships with repair garages and car hire companies. Investors could soon have a whole new range of ways to play the UK motor insurance market. RBS is planning to float its Direct Line business this year, while smaller rivals esure and Hastings are also looking at listing. Anyone planning to invest should take a close look at the core business. Investment returns and ancillary income are all well and good, but unless the company can get its underwriting right, investors should drive straight by.