Motor insurers warn 2025 set to be ‘calm before the storm’

- Premiums dip in 2025, but gains likely short-lived as claims costs surge

- Insurers face fresh losses in 2026 amid inflation and market pressure

- UK motor sector treads water – but stability hangs by a thread

Insurers expect to just about break even this year – but fear sliding in to the red in 2026 as rising claims inflation, falling premiums and fierce market competition take their toll, according to analysis from EY.

The sector is forecast to post a Net Combined Ratio (NCR) of 100% in 2025, meaning for every £1 in premium income, insurers will pay out exactly £1 in claims and expenses.

That’s a narrow escape after returning to profit in 2024, with an NCR of 97%, following three years of losses. But things are set to worsen in 2026, with an NCR of 107% predicted – firmly back in the red.

A mix of falling premiums, persistent inflation, and uncertainty stemming from industry consolidation and tariff-linked trade disruption is driving the shift.

Motorists will see premiums dip 6% this year, saving around £35 per policy, as insurers cut rates on the back of last year’s stronger-than-expected claims performance.

But any relief will be short-lived: a 5% hike is expected in 2026, adding £25 back on – a net saving of just £10 across the two years.

Dan Beard, UK insurance partner at EY, warned that 2025 could be a "calm before the storm" moment.

“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.”

He added that the sector faces a delicate balancing act: “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.”