After a profitable 2024, the UK motor insurance market looks set to stall in 2025 and then tip into losses a year later, according to EY. The firm expects underwriting results to weaken fast as pricing softens and claims costs climb again.
EY estimates a net combined ratio of 97% in 2024, the first underwriting profit for the sector since 2021. That balance doesn’t last. The ratio is forecast to rise to 101% in 2025 and jump to 111% in 2026.
In simple terms, every £1 collected in premiums this year would translate into £1.01 paid out in claims and expenses. By 2026, that figure rises to £1.11. Last year, insurers were paying about 97p for each £1 earned.
EY links the slide mainly to inflation returning to claims severity while premiums fall. Repair bills are climbing again. Vehicles cost more to fix, parts prices stay elevated, and advanced in-car technology adds complexity. Premium income is moving the other way.
Consumer premiums rose 14% in 2024 as insurers pushed through increases to catch up with inflation. That cycle has reversed. EY expects premiums to drop by 10% in 2025, cutting an average £54 from each policy.
The reduction is steeper than EY expected in June, when it forecast a 6% fall. Better-than-expected claims performance through 2024 and early 2025 helped drive prices down faster.
Premiums are expected to edge up again in 2026. EY forecasts a 3% increase, adding roughly £15 per policy. It won’t be enough. Claims costs are projected to rise faster than prices, pushing the market deeper into loss.
Dan Beard, insurance partner at EY UK, said motor insurers are again staring at losses in a market shaped by geopolitical strain, economic pressure, regulation, and consolidation. He said the outlook has worsened in recent months as inflation returned and premium cuts proved larger than expected.
UK motor insurers are once again facing the prospect of losses in an increasingly challenging market, with geopolitical, economic and regulatory changes and escalating consolidation all impacting portfolios.
Dan Beard, insurance partner at EY UK
Beard added that EY’s forecasts assume no reserve releases. Insurers that built conservatively during recent profitable periods may find some relief there.
“The outlook has deteriorated further than expected over recent months due to the return of inflation and higher than expected premium rate reductions. Our forecasts assume no reserve movements, so there is potential for some offsetting for insurers who have been cautious in reflecting recent periods of positive experience,” Dan Beard says.
For motorists, lower prices in 2025 offer breathing room. For insurers, falling income weighs on balance sheets just as costs rise again.
EY still sees change ahead for the sector. Insurers, Beard said, will need to adjust strategy, manage risk tightly, and keep pricing disciplined if they want growth that doesn’t unravel the next time costs surge.
