UK motor insurers are expected to face a challenging outlook over the next two years, with industry analysts projecting a near break-even result in 2025 followed by a return to underwriting losses in 2026.
According to forecasts from EY, the sector is projected to post a net combined ratio (NCR) of 100% in 2025, a figure that would indicate neither profit nor loss on underwriting.
However, the ratio is anticipated to rise to 107% in 2026, meaning insurers would be paying out more in claims and expenses than they collect in premiums.
The deteriorating profitability is expected to stem from two main factors: rising claims inflation and falling premiums. Analysts point to intensified competition among insurers as a key driver behind the projected 6% drop in average premiums this year. Despite this decline, EY expects premiums to begin recovering in 2026, with a 5% rise forecast.
Recent market data has shown a broader pattern of declining premiums across the UK motor insurance sector. According to the Confused.com Car Insurance Price Index compiled with WTW, average comprehensive car insurance premiums fell by 16% over the past 12 months, a reduction of £144.
This brings the national average to £757, the lowest in two years, and reflects a downward trend in pricing that began roughly 18 months ago.
At the same time, insurers are continuing to manage high claims costs. In 2024, motor insurers paid a record £11.7 billion in claims, a 17% year-on-year increase. The rise in costs has been linked to higher expenses for vehicle repairs, delays due to parts shortages, and inflationary pressure across the broader supply chain.
The squeeze on profitability comes after a temporary reprieve. In 2023, motor insurers saw premiums increase by 14% as they responded to a combination of adverse weather events and higher repair costs. Those increases helped the sector record a combined operating ratio of 97%, even while insurers paid out a record £11.7 billion in claims.
Premiums had initially begun rising in 2022, following the easing of Covid-19 lockdown restrictions that led to a rebound in road usage. Although EY expects further premium growth next year, the firm also anticipates that claims costs will continue to rise, creating more pressure on insurers’ underwriting margins.
Consolidation in the market is also shaping the competitive environment. Aviva is currently awaiting the completion of its £3.6 billion acquisition of Direct Line, a move that – if approved – would give the combined entity over 20% of the UK motor insurance market.
The deal, which still requires shareholder approval and is expected to face scrutiny from competition regulators, would significantly alter the competitive landscape and potentially affect pricing strategies across the sector.
Dan Beard (main picture), UK insurance partner at EY, said the industry is again facing an uncertain operating environment after only one profitable underwriting year in the past three.
“The rapidly changing geopolitical, economic and regulatory picture, alongside increasing levels of consolidation, are posing very real challenges to motor insurers as they look to steer their pricing and portfolios,” Beard said.
Beard also noted that despite market pressures, insurers remain aware of the importance of supporting customers, improving propositions, and managing costs while meeting regulatory obligations.
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