After flirting with profitability, motor insurers set for flat growth in 2025
UK motor insurance firms face a difficult couple of years – despite having entered profitability for the first time since 2021. A new study argues they need to consider new models of business to thrive, rather than simply rely on premium hikes from increasingly cost-conscious customers.
The UK motor insurance market in 2025 is at a crossroads. Amid rising inflation, regulatory scrutiny and evolving risks related to crumbling transport infrastructure and climate change, firms are also contending with consumer demands for affordability and fairness. This has left many companies in the sector facing shrinking margins, and while many drivers – with experience of trying to make an insurance claim, or disputing a rise in premiums despite their no claims bonus – might break out their own world’s smallest violin upon hearing that news, businesses instinctively reach to raise prices when under these kinds of pressures.
Before it comes to that, however, a new report from EY suggests that amid record-high pay-outs and shrinking margins, insurers should first pivot from traditional models to “tech-driven, customer-centric strategies”. The situation at present is not actually a crisis as such – as in 2024 the motor insurance market as a whole managed to achieve profitability for the first time since 2021. That presents some headroom in the period ahead – which they will need to put to use on the aforementioned pivot.
Make hay while the sun shines
Insurers are warned by EY that the ‘good times’, such as they are, are not expected to last long. EY predicts that in 2025, the market will only break even, before re-entering loss-making territory in 2026.
Net Combined Ratios (NCRs) are a metric for evaluating the profitability and financial health of an insurance company, calculated by ratio of claims and expenses paid out divided by premiums received. According to the firm’s calculations, these will sit at 100% and 107% for the coming two years, having hit 97% in 2024. This means for every £1 earned in consumer premiums in 2025, the sector is forecast to pay out £1 in claims and expenses, rising to £1.07 in 2026 – compared to 97p in 2024.
Rising competition in the sector has also led to premiums being spread thinner across the firms in the sector. Alongside a return to heightened inflation, this is driving the deteriorating outlook – while being exacerbated by tariff-related trade disruption and uncertainty linked to market consolidation.
Beyond pricing
As noted, these pressures have seen many companies reflexively ramp up premiums to shore up their bottom-lines. In 2024, a rise of 14% saw firms move to improve their financial position. In the short-term future, some will be looking to cut back on those prices to drum up business – though not in a way that will probably matter much to the average customer.
EY expects premiums to decline by an average of 6% in 2025, before rising 5% in 2025, ‘saving’ motorists around £10 over the next two years. While that was hardly going to lead to street parties, however, when viewed as part of a three-year cycle, that saving it obliterated by 2024’s double-digit price-hike. And in the long term, firms may fall further into the red, unless they further escalate prices to compensate for rising claims costs.
But EY added that this could hurt insurers in the long-term, instead suggesting now is the time to reimagine their models. Dan Beard, UK insurance partner at EY, argued that “rapidly changing geopolitical, economic and regulatory picture, alongside increasing levels of consolidation” mean the motor insurance sector faces “very real challenges” that require more than just pricing changes to plan for.
Beard added, “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.”
