EY has forecast that the UK motor market will return a net combined ratio of 101% in 2025, rising to 111% in 2026. This follows the 97% it achieved in 2024, the first time the market had been profitable since 2021. EY said the deteriorating outlook was due to downward pressure on premiums and ongoing inflation.

EY said it expected premiums to fall by 10% in 2025, a larger reduction that the 6% it had forecast in the summer. Looking ahead, it estimated that rates would rise by 3% in 2026.

Dan Beard, UK insurance partner at EY, said: “The outlook has deteriorated further than expected over recent months due to the return of inflation and higher than expected premium rate reductions.

“Our forecasts assume no reserve movements, so there is potential for some offsetting for insurers who have been cautious in reflecting recent periods of positive experience.”

He added: “Despite these challenges, the UK motor insurance industry is poised for significant transformation driven by shifting consumer preferences – in particular the continued rise of electric and hybrid vehicles – as well as technological change.”