EY Home Analysis: Why Are UK Home Insurers Facing Losses?
The UK home insurance market is expected to fall back into the red in 2026 following a brief period of profitability. According to the latest EY Home Insurance Results Analysis, the sector is forecast to report a Net Combined Ratio (NCR) of 103% next year. This follows a profitable 2025 where the industry achieved an NCR of 98%.
The shift signifies that for every £1 (US$1.3) collected in consumer premiums, insurers are projected to pay out £1.03 in claims and expenses. The swing back to a deficit comes after two years of losses prior to 2025, suggesting that the industry's recovery may be short-lived.
Claims volatility and weather impacts
The forecast follows a 2025 period defined by a dry summer which led to an 85% surge in subsidence claims compared to 2024. Despite this spike, overall weather-related losses remained manageable as storm and flood events stayed 18% below the 10-year average.
Relief also came from a reduction in high-frequency perils. Claims for theft, accidental damage and escape of water all saw lower volumes, providing a temporary buffer after several years of elevated activity. However, the long-term trend remains challenging.
While claim volumes have dropped 36% since 2020, the total amount paid out by UK carriers has skyrocketed by 126% over the same period. This discrepancy is driven by the soaring costs of specialist repair services, labour and raw materials.
Dan Beard, EY UK Insurance Partner, comments: “After a welcome return to profitability in 2025, the UK home insurance sector is facing renewed challenge this year. Rising claims costs and intense competition are squeezing margins, leaving many insurers with limited room to manoeuvre.
“The current heightened geopolitical uncertainty adds another layer of complexity. Potential disruption to supply chains, higher fuel and energy costs, and broader wage and price pressures are likely to be felt by households and insurers alike, which could drive claims costs above current projections in the months to come.
Softening premiums and competition
Consumers are expected to see a slight reprieve in pricing, though this adds further pressure to insurer margins. Average written premiums are forecast to drop by 3% by the end of 2026. This would make the average policy approximately £10 (US$13.2) cheaper – falling to £320 (US$424.5) compared to £330 (US$437.7) in 2025.
This downward trend in pricing is largely attributed to intense market competition. After two years of rate hikes designed to offset inflation, carriers are now beginning to lower premiums to maintain volume and scale. With geopolitical uncertainty and supply chain disruptions persisting, the ability to pass on rising operational costs to the consumer has become increasingly limited.
Dan continues: “Now more than ever, insurers need to strike a careful balance between cost discipline and continued transformation, so they can grow sustainably and deliver long-term value for customers.”
The data, sourced from the Association of British Insurers (ABI) and EY market modelling, suggests that the focus for the next 12 months will remain on balancing transformation with fiscal discipline. The combination of wage pressures and price hikes in the wider economy continues to create a complex environment for underwriting.
