Briefing: Focus on 2026 key for motor insurers as next year could be ‘ugly’

Professional services firm Ernst and Young’s (EY) predictions for the UK motor market do not paint a pretty picture.

According to analysis published by the organisation in June 2025, net combined ratios (NCRs) of 100% and 107% are forecast for 2025 and 2026 respectively, 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, with this rising to £1.07 in 2026. This compares to 97p in 2024.

These estimates come amid cyclical market softening, meaning market competition is increased and coverages are more readily available, resulting in premium drops.

Following a rise of 14% in consumers’ motor premiums in 2024, EY expects a 6% drop for the same premiums this year, equating to an average saving of £35 per policy.

As customers are set to benefit from soft market conditions, insurers are paying out billions of pounds in claims.

According to the ABI’s quarterly premium tracker, published on 13 August 2025, its insurer members paid out £3.1bn in motor claims during the second quarter of this year,maintaining the record breaking level of quarterly payouts first reached in Q1 2025.

So, when put in perspective, EY’s prediction does not come as a surprise. And it seems insurers are well aware of this situation.

Chief executive views

Speaking exclusively to Insurance Times, Geoff Carter, chief executive at Sabre Insurance Group, said keeping an eye on the delta between premiums and claims inflation would be the key to getting a better picture of 2026’s motor market.

He explained: “That delta, if it carries on [like it has so far], then combined ratios have to drift out, have to move out.

“It won’t impact this year because there is probably enough positive earnings coming through from prior years. But that’s not going to be there next year.”

Meanwhile, Colm Holmes, chief executive at Allianz UK, warned that “inflation is still very real in the UK economy”.

High inflation rates started to bite in 2022, exacerbated by Russia’s invasion of Ukraine that year and the subsequent knock-on effects that hit the energy markets. This culminated in a UK inflation rate – measured by the Consumer Price Index (CPI) – of 10.1% for January 2023, according to the Office for National Statistics (ONS).

Although the ONS has since reported an overall fall in inflation, the CPI rose by 3.8% in the 12 months to July 2025 – up from a 3.6% uptick in the 12 months to June 2025.

EY said a return to creeping inflation was a driving force behind its deteriorating outlook for the UK’s motor market.

Holmes added: “We’re still seeing inflation running well above where it’s traditionally been if you look at the last 10 to 15 years.

“We’re still seeing, in motor, inflation running in the mid to high single digits in the UK at the moment. The need for rate is there just to cover that inflation.

“So, if the market was to keep softening, I suspect EY might well be right.”

Preparing for 2026

I believe motor insurers having a focus on 2026 now could mitigate the impact of what is set to be a tough year.

This is because getting ahead of the curve on pricing and being ready to implement strict underwriting practices could be key in ensuring margins and premiums stay as consistent as possible, instead of having large spikes and dips.

Firms are already preparing for a tough 2026. Carter said that while next year could be “ugly” for the market, Sabre Insurance is “already in a position where we’re fully funded for claims inflation”.

Holmes added: “At Allianz, we’re very much focused on underwriting to ensure that we can deliver sustainable growth and sustainable margin, so that we’re not in and out of market.

“We want to build those customer relationships.”