EY Forecasts a 108% Combined Ratio for UK Motor Insurers in 2026, Their Deepest Loss of the Soft Cycle, With Premiums Needing to Rise 16% Over Two Years

The UK motor insurance market is heading for its weakest underwriting result of the current soft cycle, according to analysis from EY published on July 23, 2026. EY's net combined ratio, which measures claims and expenses as a share of premiums after reinsurance, was 98 per cent in 2024, a profitable year. EY's estimated final figure for 2025 is 102 per cent, a small underwriting loss, and its forecast for 2026 is 108 per cent, which means roughly £1.08 paid out in claims and expenses for every £1 of premium earned. For 2027 it forecasts a partial recovery to 103 per cent, which is still above 100 per cent. The 2025 result was therefore a small underwriting loss rather than a break-even year, and EY expects losses to continue through 2027 on current assumptions.

The cause is a squeeze from two sides. On the premium side, EY says rates fell by almost 12 per cent during 2025, and that this drop is feeding through to earned premium, the premium recognised as cover is provided, in 2026. Insurance Business UK quoted EY as saying the lower rates from 2025 compound claims inflation. On the claims side, EY expects total net claims to rise by 4 per cent in 2026 and 5 per cent in 2027. Claims frequency is expected to stay broadly stable, and EY and the other coverage point to the average cost of a claim as the primary driver of claims inflation. Repair, labour and vehicle costs are the main pressure points, and oil price volatility and supply chain disruption could raise repair, parts and logistics costs further. None of the coverage reviewed gives a specific percentage for repair cost inflation.

The scale of the claims bill gives context. The Association of British Insurers reports that motor insurers paid out £11.9 billion in 2025, and that vehicle damage claims were £7.5 billion of this, or 63 per cent. Because vehicle damage is the largest component, changes in repair costs have an outsized effect on results. Moody's, in a separate report on UK insurers, said that motor claims inflation had fallen to mid-single-digit levels and that vehicle technology is raising repair costs, since electric vehicles can cost more to fix and battery damage can increase the chance that a car is written off. That is consistent with EY's forecast of 4 to 5 per cent growth in net claims, although the two organisations measure different things.

EY expects the premium response to be large. It forecasts that premiums will rise by 4 per cent in 2026 and 12 per cent in 2027, which is about 16 per cent over two years. Adding two annual changes of 4 and 12 per cent gives a compounded figure of about 16.5 per cent, so 16 per cent is a fair summary. Dan Beard, UK insurance partner at EY, said consumers should expect higher motor insurance premiums over the next two years as insurers look to restore margins. The Insurance Business UK article also cited Defaqto data showing that motor premiums rose 3.6 per cent in the first half of 2026, which suggests the turn in prices has begun. For drivers, the practical point is that the low renewal prices of the last year or two may not last, and that comparing quotes at each renewal matters more when the market is changing direction.

Beard's comments describe a market that is diverging. He said that UK motor insurers are navigating a difficult combination of lower earned premium income and persistent cost inflation, that 2026 could be the toughest year of the current soft cycle, and that the market is becoming more polarised, with the gap between stronger and weaker performing insurers widening. The Insurance Business UK article adds that consolidation and merger activity are reshaping competition. A soft cycle is a period when insurers compete on price, and it normally ends when losses force a rise in rates. EY's numbers suggest that the turning point is arriving in 2026 and 2027.

EY also sets out a risk to its own forecast. Geopolitical pressure could push net combined ratios up by a further 5 to 10 per cent beyond the forecasts, according to the press release. The coverage does not define how that range is calculated, so it should be read as a warning about the direction of risk, not a precise number. For comparison, the Insurance Business UK article cited Oxbow Partners in June 2026 as forecasting that UK motor operating profit would fall from £2 billion in 2025 to £1.3 billion in 2026, with the combined ratio rising from 89 per cent to 95 per cent. That is a smaller deterioration than EY's, and the two combined ratios are not directly comparable because they are defined differently, but both point in the same direction.

For insurers, the incentives are clear. After a second and third year of underwriting losses, according to CollisionWeek, insurers have a direct motive to scrutinise repair spend more closely, which affects the garages and body shops that carry out repairs. The full text of that article was not accessible for this review, so the specific effects on repairers are not described here. What can be said from the EY figures is that insurers will use pricing, tighter claims management and underwriting selection to restore profitability.

What to watch is the pace of premium increases in the second half of 2026, whether claims inflation stays within the mid-single-digit range, and whether the partial recovery that EY forecasts for 2027 materialises. The forecast is conditional on claims cost trends, and EY says so. The UK motor market is therefore likely to be defined less by cheap prices over the coming two years than by insurers trying to bring their combined ratios back below 100 per cent.