The UK motor insurance market is expected to move back into marginal and then negative underwriting territory over the next two years after a profitable 2024, according to new projections from EY.
The consultancy forecasts that the sector will broadly break even in 2025 before recording losses in 2026.
EY’s latest analysis shows the market delivered a net combined ratio (NCR) of 97% in 2024, marking its first year of underwriting profitability since 2021. NCRs of 101% in 2025 and 111% in 2026 are now anticipated, implying that for every £1 of consumer premium written in 2025, insurers will on average pay out £1.01 in claims and expenses, rising to £1.11 in 2026, compared with 97p in 2024.
The shift reflects a combination of renewed claims inflation and softening rates. EY said many carriers reduced prices through 2024 to stay competitive following a period of stability, just as higher repair costs, more complex vehicle technology and broader inflationary pressures began to drive up claims again, putting pressure on margins.
Consumer premiums, which rose by 14% in 2024 as firms adjusted for inflation, are expected to fall by 10% in 2025, equivalent to an average saving of £54 per policy.
EY noted that this reduction is larger than the 6% drop it projected in June, citing more favourable claims experience through 2024 and early 2025.
Premium rates are then forecast to increase again in 2026, with a 3% rise adding an average £15 per policy. Even with this uptick, EY expects the industry to move further into loss, as escalating claims costs are projected to outpace pricing adjustments.
The deterioration in underwriting performance is emerging alongside a wider policy debate about how the UK motor market should operate. The government’s Motor Insurance Taskforce final report has prompted a mixed but engaged response from insurers and other stakeholders, who broadly support its direction while stressing that the way reforms are delivered will determine their impact on customers and market stability.
Market participants have also linked the profitability outlook to structural and regulatory factors, including the effect of General Insurance Pricing Practices (GIPP) rules on product design and shopping behaviour, and ongoing questions around non-fault repair cost differentials and the treatment of electric vehicle battery data.
These issues sit in parallel to EY’s projections, indicating that insurers must navigate both cost pressures and evolving expectations on pricing, transparency and claims handling as the market adjusts.
Dan Beard (pictured above), EY UK insurance partner, said: “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.”
He added that the outlook “has deteriorated further than expected” due to the return of inflation and larger-than-anticipated rate reductions, and noted that the firm’s forecasts “assume no reserve movements,” leaving room for some offset for insurers that have taken a cautious stance.
Beard said that while lower premiums in 2025 will support motorists, “reduced income growth will negatively impact insurers’ balance sheets.”
He also pointed to an industry in transition, citing shifting consumer preferences such as the growth of electric and hybrid vehicles and ongoing technological change, and said insurers will need to adjust strategy, manage risks and maintain pricing discipline as these trends develop.
