The motor insurance industry is projected to return to profitability in 2024 after two years of record losses, according to EY’s latest UK Motor Insurance Results.
The sector is forecast to achieve a Net Combined Ratio (NCR) of 93% in 2024, marking a sharp recovery from 2023’s loss-making NCR of 112.7% – the worst performance on record.
High claims costs, surging material and labour expenses, and premium rates lagging behind claims inflation created significant challenges for insurers in 2022 and 2023.
However, 2023 saw falling inflation, improved claims frequency, and higher premium rates in the latter half of the year, which contributed to a turnaround in performance.
EY estimates that in 2023, motor insurers paid out £1.13 in claims and expenses for every £1 in premiums. In contrast, 2024 is forecast to see insurers pay just 93p for every £1 collected, marking the sector’s most profitable year since 2020.
Consumer premiums rose sharply in 2023, with a 25% increase aimed at aligning rates with inflationary pressures. In 2024, premiums are expected to rise by 12%, adding an average of £68 per policy.
However, market competition is anticipated to drive premiums down by 2% in 2025, saving consumers an average of £7 compared to 2024 rates.
Despite optimism for 2024, the sector is expected to return to a loss-making position in 2025, with a forecast NCR of 101.6%. Slowing premium income growth, coupled with rate reductions in the second half of 2024, is likely to weigh on earnings in 2025.
Mat Wheatley, UK insurance partner at EY, commented: “2022 and 2023 were challenging years for motor insurers, who faced significant losses, and for consumers, who experienced steep premium increases.
“While 2024 marks a positive shift, uncertainty around the geopolitical environment, regulatory changes, and the 2025 Ogden discount rate revision will present significant challenges. Insurers must carefully balance supporting customers, managing costs, and driving sustainability and innovation in the years ahead.”
