UK motor insurers experienced their worst underwriting performance in a decade as claims and costs outpaced premiums, leading to substantial losses.

In 2022, car insurers' net combined ratio reached 109.5%, reflecting an underwriting loss due to rising claims and the escalating cost of second-hand cars, parts, and labor.

The inflated payouts have severely impacted the margins of motor insurers, especially in the highly competitive UK market, resulting in notable consequences.

Industry leaders, such as Direct Line and Canada's Intact, have faced challenges, with profit warnings and business exits due to inflationary pressures.

The adverse effects on insurers' margins stem from a combination of factors, including inflation, increased accident rates post-pandemic, and regulatory pricing changes.

To offset the cost inflation, annual premiums have surged, exerting pressure on consumers. EY projects a 16% rise in prices this year and an 11% increase next year.

EY anticipates that UK motor insurers could achieve an underwriting profit in 2024, with a net combined ratio of 97.4%, but profitability remains uncertain due to significant price and cost fluctuations.

Motorists in the UK are already experiencing the impact of rising premiums, reaching their highest level since 2019, as motor repairs have become approximately 33% more expensive.

Industry executives have defended the surge in premiums, citing squeezed profits and escalating claims costs as the driving factors behind the sharp rebound.

Balancing profitability in the face of pricing challenges and cost increases presents a narrow runway for insurers, posing uncertainties for their future forecast.