A new market report has found the UK motor insurance sector posted a record operating profit of approximately £2 billion in 2025, driven by a step-change in pricing in 2023 and 2024 that continued through into last year’s results.
The UK Motor Market Report 2026, published by insurance consultancy Oxbow Partners, warns that performance is set to reverse as lower premiums earn through and claims costs accelerate.
The report draws on individual company data for 19 of the largest insurers, covering around 90% of the market.
Oxbow Partners forecasts profit falling to £1.3 billion in 2026 and declining further in 2027. The combined ratio is forecast to rise from 89% in 2025 to 95% in 2026 and 96% in 2027.
The primary driver is a growing gap between premium income and claims inflation. Gross earned premium is set to fall 2% in 2026 while claims costs rise 5%. This pushes the loss ratio to 71% from 66% in 2025.
Average premiums dropped 9% in 2025, well beyond Oxbow Partners’ estimate of 3%. Claims inflation moderated to 3% in 2025, down from 10% in 2024. This allowed insurers to hold prices lower for longer than expected.
Not every forecaster shares the report’s relatively measured outlook. EY projects net combined ratios of 101% in 2025 and 111% in 2026. This implies that insurers will pay out £1.11 in claims and expenses for every £1 of premium collected.
EY UK insurance partner Dan Beard said the outlook “has deteriorated further than expected” due to returning claims inflation and larger-than-anticipated rate reductions.
Rates have begun to turn. Pearson Ham data indicated a 1% rate increase across Q1 2026 as insurers found the bottom of the latest pricing cycle.
Oxbow Partners expects continued repricing through the rest of the year. The conflict in Iran is an added complication, with potential energy price inflation feeding into claims severity through higher repair and parts costs.
The underlying claims data reinforces this concern. ABI figures for Q1 2026 show the average accidental damage motor claim rising 8% to £3,699. Repair costs accounted for 64% of all motor claims in Q3 2025, totalling £1.9 billion. Vehicle complexity and parts prices continued to push costs higher.
The Oxbow Partners report identifies two structural changes reshaping how the market behaves. Introduced in 2022, General Insurance Pricing Practices regulations prevent insurers from underpricing new business relative to renewals. This forces faster corrections when rates move out of line.
Oxbow Partners expects these forces to produce shorter and less volatile pricing cycles going forward. The combined ratio is likely to hover around the mid-90s rather than swinging between the extremes of previous years.
The expense ratio is forecast to rise marginally to 24% in 2026. Insurers that manage post-merger integration and cost inflation effectively will be best placed to navigate what the report describes as a more rational but still fiercely competitive market.
