UK motor insurers are on course for a second straight year of underwriting losses in 2026, with the net combined ratio (NCR) forecast to reach 108%, according to EY's latest market analysis.
The sector recorded an NCR of 102% in 2025, reversing the profitable 98% NCR posted in 2024. For every £1 earned in premiums in 2025, insurers paid out approximately £1.02 in claims and expenses. That figure is forecast to rise to £1.08 in 2026 before easing to £1.03 in 2027.
Premium rates fell by almost 12% during 2025. Those reductions are now feeding through to earned premium and compounding persistent claims inflation. Net claims are expected to rise 4% in 2026 and 5% in 2027, with higher average costs per claim the primary driver.
The scale of claims pressure is considerable in absolute terms. The Association of British Insurers (ABI) reported motor insurers paid out £11.9 billion across 2025, with vehicle damage accounting for £7.5 billion, or 63% of total claims.
Repair, labour, and vehicle costs remain the main pressure points. Claims volumes are not expected to climb materially, but insurers are absorbing higher costs on each settlement.
EY forecasts motor insurance premiums will rise 4% in 2026 and a further 12% in 2027, a combined increase of 16% over two years. The trajectory reflects insurer efforts to restore margins eroded by the soft pricing cycle that began in late 2024.
Pricing data suggests the floor may already be behind the market. Motor premiums rose 3.6% across the first half of 2026, per Defaqto analysis, with the year-on-year gap narrowing to just 0.8%.
Dan Beard, UK insurance partner at EY, said 2026 was likely to be the most difficult year of the current cycle. "Our latest analysis suggests 2026 could be the toughest year of the current soft cycle, with profitability coming under further pressure, before some expected improvement in 2027 as pricing actions feed through," he said. "For consumers, this likely means higher motor insurance premiums over the next two years as insurers look to restore margins."
Some relief is forecast for 2027, when an NCR of 103% is projected as pricing actions take hold. EY cautions the recovery remains conditional on claims cost trends and broader market stability.
Tensions in the Middle East add a layer of uncertainty to the outlook. Oil price volatility and supply chain disruption could push repair, parts, and logistics costs higher. NCRs could worsen by an additional 5% to 10% above current forecasts.
That scenario would delay any meaningful recovery and add further pressure on underwriting margins already stretched by two years of below-cost pricing.
Beard said the structure of the market is shifting, with performance gaps widening between stronger and weaker insurers. Recent mergers and acquisitions activity and consolidation are reshaping competitive dynamics. He said the response of individual carriers would likely determine their positioning in the second half of 2026 and beyond.
Oxbow Partners reached a broadly similar conclusion in June 2026. The consultancy forecast UK motor operating profit would fall from £2 billion in 2025 to £1.3 billion in 2026. The sector combined ratio was projected to rise from 89% to 95%.
The EY analysis covers written premiums, claims inflation, and NCR projections across the UK private motor insurance market, with forecasts extending to 2027.
