Insurance payouts for car accidents will continue to climb, surpassing the record £11.7 billion set in the previous year.
Geez, the UK motor insurance market's in a world of hurt, mate! EY predicts claims inflation to stay bloody high over the next couple years, pushing total payouts to new records in 2025 and 2026. To make matters worse, insurance customers are still expected to see their rates drop due to a competitive market—putting insurers' margins under even more pressure.
A record-breaking £11.7 billion was paid out in motor claims in 2024—that's a 13% increase in the average claim (£4,900), according to the Association of British Insurers. Despite seeing a "significant decline" in claim frequency, EY expects insurers to slide into an underwriting loss of around 107% in 2026 as prices fail to keep up with inflation.
To make matters worse, the UK motor insurance industry had a combined operating ratio (CoR) of 97% in 2024, despite the record claim payouts. A CoR exceeding 100 indicates that insurance companies are making an underwriting loss, while a ratio below that figure denotes a profit.
Oxbow Partners' analysis supports EY's claim that claims inflation, driven by severity rather than frequency, will stay high in 2025. The context points to continued cost pressures but still manageable levels for insurers in 2025 and 2026[1][2].
All in all, motor claims inflation in the UK is projected to stay sky-high at around 10% in 2025. Although EY doesn't provide an exact figure for 2026, Oxbow's forecast suggests inflationary pressures on claims costs will persist but may ease slightly compared to 2025[1][2]. By now, you've got the gist: it's a bumpy road ahead for the UK motor insurance market!
With the UK motor insurance market struggling, insurers are grappling with high claims inflation and increased payouts, expected to reach record-breaking figures in 2025 and 2026. Businesses and investors should be aware of the ongoing financial challenges faced by this industry, as the rising costs could affect insurance companies' profit margins.
