Despite the UK motor insurance market achieving profitability in 2024, EY’s latest results analysis predicted that insurers will only break even this year – re-entering loss-making territory by 2026.
Net Combined Ratios (NCRs) of 100% and 107% respectively are forecast for the next two years, following an NCR of 97% in 2024.
This means that for every £1 earned in consumer premiums in 2025, the sector is forecast to pay out £1 in claims and expenses, rising to £1.07 in 2026. This compares to 97p in 2024.
A return to inflation and falling premiums – as a result of rising competition combined with 2024’s positive claims experience, which has enabled insurers to lower some rates – is driving the deteriorating outlook.
This is exacerbated by tariff-related trade disruption and uncertainty linked to market consolidation.
Premiums are projected to fall 6% in 2025, but rise 5% in 2026, with an overall saving for motorists of £10 over next two years.
Following a rise of 14% in consumer premiums in 2024 – as firms increased rates to reflect the impact of rising inflation – premiums are expected to fall over 2025.
As a result, EY expects a 6% drop in consumer premiums this year, equating to an average saving of £35 per policy.
However, premiums are expected to pick up again in 2026 as inflationary pressures continue, with a forecast premium rate rise of 5% – adding an average £25 back on per policy.
Despite anticipated premium rate rises over 2026, the industry is expected to fall deeper into the red that year (with an NCR of 107% forecast), as escalating claims costs outpace the level of these price increases.
Dan Beard, UK insurance partner at EY, said: “Following just one year of underwriting profitability in the last three, UK motor insurers are once again bracing for challenge in an increasingly uncertain market.
“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.
“At the same time, lower premiums charged during the first half of this year are set to impact the bottom line.
“Despite this testing environment, insurers will be keenly aware of the need to continue to support customers with better propositions whilst carefully managing costs and delivering on regulatory commitments.”
