Car insurance payouts to keep rising after hitting record £11.7bn last year

EY expects the average cost of motor insurance claims will rise by c.6% in 2025

By HARRY WISE

Updated: 14:42 BST, 20 June 2025

UK motor claims inflation is set remain elevated over the next year after total payouts hit a record high in 2024, according to EY analysis.

However, the group still expects rates paid by customers to fall thanks to a competitive market backdrop, thereby putting further pressure on insurers’ margins.

EY analysts forecast the average cost of motor insurance claims to rise by around 6 per cent in 2025 and 2026, with damage inflation staying high and bodily injury inflation within the 3 to 5 per cent long-term range.

Motor claims hit a record £11.7billion in 2024, according to the Association of British Insurers, with the average claim up 13 per cent year-on-year at £4,900.

The predicted increase comes despite a ‘significant decline’ in the frequency of claims, EY said.

It credited this to better car safety, lower speed limits, workplace behaviour changes, and even a reluctance among motorists to make claims as a result of greater insurance costs in the UK.

Vehicle warning: Motor claims inflation is likely to remain elevated despite a drop in the prevalence of claims, according to EY

EY expects motor insurers’ margins to hit breakeven levels this year before slipping into an underwriting loss of around 107 per cent in 2026 as rates lag behind claims inflation.

A combined operating ratio (CoR) exceeding 100 indicates that insurance companies are making an underwriting loss, while a ratio below that figure denotes a profit.

The UK motor insurance industry had a CoR of 97 per cent in 2024, despite paying out a record £11.7billion in claims.

This was still a considerable improvement on the 113 per cent recorded the previous year when soaring claims, labour and parts costs outpaced the growth in premiums.

New business rates in the UK car insurance sector shrank by 14 per cent to £757 last year, according to the Confused/WTW Motor premium index.

It noted that the rates of decline had slowed from 7 per cent in the first quarter to 2.6 per cent in the following three months.

WTW suggested this could be the result of greater consolidation in the UK motor insurance market.

Aviva is likely to finalise the £3.7billion takeover of Direct Line Group, which is home to Churchill Insurance and vehicle recovery provider Green Flag, in July following approval from the UK’s Competition and Markets Authority.

Belgian insurer Ageas also agreed in April to acquire Esure from private equity giant Bain Capital in a £1.4billion deal that will create Britain’s third-largest home and motor insurer.

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Car insurance payouts to keep rising after hitting record £11.7bn last year

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Car insurance payouts to keep rising after hitting record £11.7bn last year