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UK Motor insurers set for losses after just breaking even in 2025, says EY
UK motor insurers are set to just about break even this year before falling to a loss in 2026, according to industry forecasters.
Analysts at EY expect higher claims inflation and falling premiums, driven by heightened competition between insurers, will impede profitability.
It forecasts the UK motor insurance market will have a net combined ratio (NCR) - a measure of underwriting profitability - of 100 per cent in 2025, followed by 107 per cent next year.
Any number above 100 means insurers pay out more in claims and expenses than they receive in consumer premiums.
EY anticipates premiums falling by 6 per cent in 2025 and increasing by 5 per cent in 2026, equivalent to a £10 saving for motorists over the two-year period.
By comparison, premiums jumped by 14 per cent last year as insurers sought to offset higher costs resulting from adverse weather conditions, as well as rising raw material and spare parts costs.
This helped the UK motor insurance sector achieve a combined operating ratio of 97 per cent despite paying out a record £11.7billion in claims.
Premiums started going up in 2022 after the loosening of Covid-related lockdown restrictions led to people travelling in their vehicles more regularly again.
While EY expects them to increase next year, it warned that car insurers will probably shrink 'deeper into the red' due to soaring claims costs.
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.'
'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.'
EY's forecasts come amid significant consolidation in the car insurance industry.
Aviva has agreed to buy Direct Line Group for £3.7billion, while Ageas intends to acquire Esure from private equity giant Bain Capital in a £1.4billion deal.
