UK Insurance Price Drops

UK insurance prices are finally easing after years of painful hikes – especially for motor and home – and that’s a classic sign the market has moved decisively into a “soft” phase of the insurance cycle.

Below is an in-depth look at why prices are starting to fall, what a soft market actually is, the less obvious forces behind the shift, and how long this window of lower premiums is likely to last.

The Association of British Insurers (ABI) reports that the average car insurance premium fell to £551 in Q3 2025, down £13 from Q2 and £56 lower than the same quarter in 2024. That’s three consecutive quarters of decline.

Independent trackers show the same pattern: quoted motor premiums are down about 17% over the past year, with May 2025 alone seeing a 1.7% monthly fall, signalling a clear softening in the market.

Home insurance is following a similar, if slightly lagged, path. After rises exceeding 40% year-on-year into 2024, average quoted home premiums are now falling in many regions, with some areas seeing reductions of around 13–15% over the last year.

Market research suggests the total size of the home insurance market (by gross written premiums) peaked in 2024 and is expected to dip slightly in 2025, indicating pricing is cooling after two years of very sharp increases.

In insurance jargon, a soft market means:

• Prices (premiums) are flat or falling
• Insurers are competing aggressively for new business
• There is plenty of capital and capacity available
• Policy terms can become broader or more generous (higher limits, more extensions, more flexibility)

By contrast, a hard market features rising prices, tight underwriting and often reduced capacity.

Global and UK-specific reports now explicitly describe most major lines as being in soft-market territory, particularly personal motor, some home insurance, and several commercial lines such as directors’ and officers’ (D&O) cover.

For UK consumers, the “soft market” shows up as:

• Lower quotes on comparison sites
• More willingness from insurers to match or beat competitor prices
• More add-on options and flexibility around excesses, telematics, and pay-by-mile covers

The huge price spikes of 2022–24 were driven by:

• High inflation in claims costs – parts, labour, courtesy cars and building materials all jumped
• Used car values and long repair backlogs
• Rising reinsurance costs after several years of large catastrophe and inflation-driven losses

Insurers pushed through hefty price rises to restore profitability. Many UK personal lines carried combined ratios at or above 100% (i.e. losing money on underwriting) for several years and needed a reset. Actuarial projections a couple of years ago already anticipated that after a strong correction, profitability would return by around 2025.

Now, with those big rate hikes “baked in” and results improving, insurers can afford – and are increasingly forced – to ease off.

ABI data shows insurers are still paying out enormous sums: around £3bn in motor claims in Q3 2025, with repair costs accounting for roughly 64% of that. Modern vehicles remain expensive to fix because of sensors and electronics.

However:

• Parts and labour inflation has slowed
• Supply chain disruption has eased
• Used car prices have cooled from their post-pandemic peaks

So while claims remain expensive, they’re not worsening at the same rate. That re-balances the equation: insurers don’t need continual double-digit price rises to keep up.

During the hardest part of the cycle, some insurers pulled back from price comparison websites or pushed rates so high they effectively “sat out” of the cheapest tiers. Now, as the market softens, more carriers are re-entering those channels and fighting for the top slots again.

Data from multiple price indexes shows heightened competition on aggregators, with churn in the “top 5” cheapest quotes associated with intensified price cutting.

When you combine:

• More insurers competing for the same customers
• Improved profitability after earlier price rises
• A cost-of-living-weary customer base highly sensitive to price

…you get a fairly classic soft-market squeeze on premiums.

The FCA’s ban on “price-walking” (loyal customers being charged more than new ones) from 2022 led to a structural reset: renewal prices jumped for some long-standing customers, and new business discounts narrowed. That change is now largely embedded.

At the same time, the public and media backlash over record-high premiums has been intense. Regulators and politicians have taken a close interest in insurance affordability. While the FCA doesn’t set prices, a strongly worded letter or thematic review can have a chilling effect on aggressive pricing strategies. The result: insurers are careful not to be seen profiteering in a cost-of-living crisis and are more willing to pass on cost improvements.

You asked specifically for angles “not usually considered,” so let’s dig into some under-the-radar drivers of the soft market.

Insurers make money in two ways:

• Underwriting profit (premiums – claims – expenses)
• Investment income (returns on the float of premiums they hold before claims are paid)

For much of the 2010s, near-zero interest rates meant investment returns were minimal, so insurers had to be extremely disciplined on pricing.

Now, with UK interest rates much higher than that era, bond portfolios are yielding more, giving insurers extra income to cushion underwriting volatility. That makes boards more comfortable tolerating slimmer underwriting margins – which in practice allows more aggressive pricing and helps sustain a soft market.

Reinsurers and capital markets pumped substantial capacity into many lines during 2023–25 after previously strong pricing and improved loss experience in certain segments. Global analyses now describe “nearly every commercial line” as being in soft-market territory due to this influx of capacity, even though specific catastrophe-exposed areas remain tighter.

For UK insurers, cheaper or more readily available reinsurance on some portfolios lowers their cost of risk transfer. When the cost of ceding risk falls, primary insurers can be more competitive on retail prices.

The UK personal lines market is highly advanced in its use of pricing models and telematics. But in the last couple of years, insurers have:

• Used richer vehicle-build data and ADAS (safety feature) info
• Adopted more sophisticated fraud analytics
• Applied machine-learning models to claims triage and leakage control

These developments can lower the expected cost per policy (by avoiding bad risks and spotting fraudulent or inflated claims earlier), which in turn supports lower average premiums without wrecking profitability.

This effect doesn’t hit the headlines like “inflation” or “Hurricane X,” but quietly shifts the economics of the market.

Several behavioural shifts have also played a role:

• More hybrid working means fewer weekly commutes for many, slightly reducing mileage and accident frequency
• Some drivers have downgraded or delayed car purchases, moving to older, cheaper-to-insure vehicles
• Cost-of-living pressures encourage people to raise voluntary excesses or remove add-ons, reducing the cost of core cover

These might sound small individually, but at market scale they reduce loss frequency and average cost per policy enough to influence pricing dynamics.

Not all the reduction is pure generosity. Some insurers are:

• Increasing standard excesses
• Tightening small-print conditions (e.g. stricter security requirements, more clearly defined exclusions)
• Adjusting cover bundles so that the “headline” product is cheaper but includes fewer add-ons by default

This is important context: the soft market is partly about cheaper prices, but also about different product configurations. On comparison sites, the cheapest policies may be more stripped-down than a few years ago.

Insurers are acutely aware of their reputational risk, particularly as climate events mount and questions are asked about the social value of insurance.

• After scandals around claims handling and low acceptance rates, especially in home insurance, firms are under pressure to show they treat customers fairly.
• Some insurers are repositioning as “responsible” or “fair-price” brands, aiming to gain trust (and share) by being visibly less volatile on pricing.

To defend or grow market share in this reputational environment, trimming rates and being seen to “give something back” after the spike years can be a deliberate strategy.

Several indicators point clearly to soft-market conditions:

1. Falling average premiums across multiple quarters in motor and parts of home.
2. Evidence that insurers are competing hard on comparison sites and direct channels, cutting prices to defend or gain share.
   Insurance Business
3. Broker and consultant commentary that commercial lines and specialty classes are mostly in soft-market territory, with reductions or flat renewals and broader cover.
4. Reports that in some areas – such as UK motor – pricing is now “at about the softest point in the cycle,” according to market executives.
   Insurance Times

The insurance cycle typically swings from:

Underpricing → poor results → sharp rate rises (hard market) → restored profitability → capacity growth and competition → rate falls (soft market) → and back again.

Right now, the UK is clearly in the “capacity growth and competition” stage.

No one can put an exact expiry date on the soft market, but we can sketch the base case and the triggers that could end it.

Current analysis suggests:

• For motor and home, prices are likely to continue easing or stabilising into 2026, but the sharpest falls may already have passed as insurers are wary of repeating the pre-2022 under-pricing mistakes.
• In commercial lines, some indexes already hint that the soft market may be bottoming out, with rate cuts moderating, particularly on fleets and some liability classes.

In other words, we may be near the flattest part of the cycle: premiums have come down from their peak and could now bump along, with modest ups and downs, rather than continue to fall at the recent pace.

The soft phase could last longer if:

• Interest rates stay relatively high, keeping investment income strong
• Claims inflation remains subdued (no fresh supply-chain crisis, no big spike in labour or parts costs)
• Competition intensifies further due to new entrants, MGAs and insurtechs hungry for growth
• Regulators and politicians maintain pressure over affordability, discouraging rapid re-hardening

If those conditions hold, the current buyer-friendly environment could easily run for a couple of years.

Conversely, several “shock” factors could quickly push the UK back towards a harder market:

• Major catastrophe or series of UK/EU weather events – significant flooding, storms or freeze events can hit property books hard and drive reinsurance costs sharply higher.
• A renewed bout of claims inflation – for example, another spike in parts prices, a wage shock in repair trades, or litigation trends that push compensation awards higher.
• Capital retreat – if global investors lose appetite for insurance risk (due to poor returns, geopolitical stress or financial market upheaval), capacity could tighten again.
• Regulatory or political interventions that unintentionally distort pricing, forcing insurers to withdraw from unprofitable segments instead of competing within them.

Soft markets can end slowly or suddenly. Historically, it often takes one or two bad underwriting years – or a sharp jump in reinsurance pricing – to trigger a turn.

Shopping around and comparing insurance really matters again. With a wide spread between cheapest and average quotes, the benefits of comparing deals and switching provider have grown. Recent consumer guidance highlighting falling average motor premiums reinforces that shopping early (around 21–28 days before renewal) can lock in lower prices.

Don’t be fooled by headline price alone. Cheaper policies may carry higher excesses or narrower cover. In a soft market, a portion of the apparent saving can be a change in product design.

This is a buyer’s window – but not forever. If your premium is still high compared with what you paid pre-2022, remember that we’re only part-way down from a very elevated peak. The current phase is an opportunity to claw back some of those increases before the cycle inevitably turns again.

The ABI

Insurance Business

Action Insurance Repair

U Switch

Aon