UK Motor Insurers Head Back Toward Losses: Oxbow Forecasts Profit to Fall From About £2 Billion to £1.3 Billion in 2026 as Repair Costs Bite

UK motor insurance has gone from record profits to forecasts of falling margins within a year. Insurance Business reported on June 9, 2026, on the findings of consultancy Oxbow Partners and others: the sector made a record operating profit of about £2 billion in 2025, helped by price increases in 2023 and 2024, and is expected to see profits fall in 2026. This article summarises that report. An earlier version of this article said that average quoted premiums rose 4.5% in the first quarter, citing Consumer Intelligence, and called the rise the first quarterly increase since early 2024. We could not confirm the Consumer Intelligence figure in the sources reviewed, so it has been replaced with the Pearson Ham figure, which shows a 1% rate increase across the first quarter of 2026. Readers should treat the direction of prices as a matter on which sources differ.

What does Oxbow forecast? In its UK Motor Market Report 2026, which covers 19 of the largest insurers, roughly 90% of the market, Oxbow forecasts that profit will fall to £1.3 billion in 2026 and decline further in 2027. It expects the combined ratio to rise from 89% in 2025 to 95% in 2026 and 96% in 2027. The loss ratio, the share of premiums paid out in claims, is forecast to rise from 66% to 71%. Gross earned premium is expected to fall 2% in 2026, while claims costs rise 5%. The expense ratio is forecast to rise slightly to 24% in 2026. A combined ratio below 100% means the insurer makes an underwriting profit, so Oxbow's forecast is for a narrowing of profit and not a loss.

What happened in 2025? Average premiums fell 9% in 2025, much more than Oxbow's estimate of 3%. Claims inflation eased to 3% from 10% in 2024. The sector's record profit came from the earlier price increases flowing through into earned premiums while claims inflation cooled. That combination cannot last: when prices fall faster than claims costs, margins narrow.

How does EY see it? EY is more pessimistic. It projects net combined ratios of 101% for 2025 and 111% for 2026. EY's Dan Beard said the outlook had deteriorated further than expected. The difference between Oxbow's 95% and EY's 111% is large and probably reflects different definitions and methods: EY's figure is a net combined ratio, and the two firms may use different samples and assumptions. The article does not explain the gap, so we do not try to reconcile the two. A reader should treat them as a range of views, from a modest decline in profit to a return to underwriting losses.

What are the signals on rates and claims? Pearson Ham data shows a 1% rate increase across the first quarter of 2026, a sign that prices may be turning. The Association of British Insurers (ABI) reports that the average accidental damage claim rose 8% to £3,699 in the first quarter of 2026. Repair costs accounted for 64% of motor claims in the third quarter of 2025, totalling £1.9 billion. The article also notes that the Iran conflict could add energy-driven inflation to repair and parts costs, though it does not quantify the effect.

Why might cycles be shorter? Oxbow points to structural changes. The General Insurance Pricing Practices rules, which ban pricing practices that penalise loyal customers, speed up rate corrections because insurers cannot rely on long-standing customers to carry price increases. Consolidation, including Aviva and Direct Line, Ageas and esure, and Saga's insurance operations, is also expected to affect competition. Together, Oxbow expects these to produce shorter, less volatile pricing cycles, with the combined ratio hovering in the mid-90s. That is a forecast and not an established fact.

What does it mean for drivers? If margins narrow as forecast, insurers will probably stop cutting prices and may raise them. Drivers who have enjoyed lower renewal quotes could see that change, so shopping around before renewal remains sensible. Specific premiums depend on the driver, car and area, and none of the figures in the report applies to an individual. The report does not forecast the size of increases, and we do not offer one.

What does it mean for insurers? A profit of £1.3 billion is still substantial, but the direction is downward, and the insurers that control repair costs, manage claims well and price accurately should fare better. Costs include parts and labour for modern vehicles that are expensive to repair, which is a long-term pressure on the sector.

One caution on the numbers: the report mixes forecasts from different organisations, actual data from the ABI and a pricing tracker, and a headline about a £700 million fall in profit that is simply the gap between about £2 billion and £1.3 billion. Because forecasts depend on assumptions about claims inflation, competition and the economy, they may be revised, particularly if the Middle East conflict affects parts and energy costs.

This article reports published forecasts and survey data and is not financial advice.