SOME of the seven direct insurance companies operating in the Irish market are unlikely to survive, according to Eureko Ireland managing director, Mr Adrian Hegarty.

Eureko owns Friends Provident and the direct insurer Celtic Direct.

"With seven companies feeding off one another like piranhas in a limited market, profits and survival are not achievable by all. Some will succeed but some are going to fail", he said at the Insurance Institute in Waterford.

Because of the level of in vestment and the economies of sale required there is room in the Irish market for, at most, five direct insurers, according to Mr Hegarty.

Three years ago there were only two direct insurers (PMPA and Celtic) and since then four new companies have joined (Premier, Touchline, First Call and Guardian) and the seventh is the new company set up by entrepreneur, Mr Sean Quinn.

Mr Hegarty who set up Premier Direct for Bank of Ireland before he joined Eureko said that the rush into direct business was based on apparent cost effectiveness. But he warned that these apparent economies can be false.

Because of the heavy cost of technology and training in direct operations, companies need to achieve a critical customer mass very quickly in order to get economies of scale.

This requires high marketing expenditure to create customer awareness and demand while the company has "to cut prices to the bone" to compete for customers.