Insurance insights annual review 2026

The UK insurance market experienced significant turbulence throughout 2025, with economic pressures, new regulations, and environmental challenges all hitting at once, changing the landscape for insurers and policyholders.

As we enter 2026, these challenges continue to evolve, bringing both obstacles and opportunities for the sector. This annual review explains what these developments mean for you and how to navigate them successfully.

Inflationary pressures and claims costs

Persistent inflation drove claims costs to unprecedented levels in 2025. Motor premiums rose sharply as the cost of vehicle repairs escalated, fuelled by supply chain disruptions affecting parts availability and increased labour costs in the repair sector. This resulted in significant premium increases for consumers, with many households facing renewal premiums 30-40% higher than the previous year.

Home insurance similarly felt the impact of inflation, particularly in building and contents claims. The cost of building materials, skilled tradespeople, and replacement goods all rose substantially, whilst insurers also grappled with an increase in subsidence claims linked to extreme weather patterns. These factors combined to push home insurance premiums upward, creating affordability concerns for many homeowners.

Extreme weather and climate risk

The 2025 calendar year saw several severe weather events that tested the resilience of UK insurers. Prolonged periods of heavy rainfall led to widespread flooding across multiple regions, whilst summer heatwaves and subsequent storms caused significant property damage. The insurance industry paid out billions in weather-related claims, with some estimates suggesting that climate-related losses exceeded £3bn for the year.

These events have accelerated the sector's reassessment of climate risk, with many insurers refining their catastrophe modelling and risk assessment frameworks. There has been growing concern about the insurability of properties in high-risk flood zones, with some insurers withdrawing coverage or imposing substantial premium increases in vulnerable areas. The Flood Re scheme, designed to ensure affordable flood insurance for high-risk properties, came under renewed scrutiny as stakeholders debated its long-term sustainability in the face of escalating climate risks.

Regulatory developments and consumer duty

The Financial Conduct Authority's Consumer Duty, which came into full effect for existing products and services in July 2024, continued to reshape insurer behaviour throughout 2025. Firms invested heavily in ensuring their products and services delivered good outcomes for customers, reviewing pricing practices, claims handling procedures, and communication strategies. This regulatory focus on consumer outcomes led to increased operational costs for many insurers but also drove improvements in product design and customer service standards.

Capacity constraints and reinsurance costs

The global reinsurance market experienced significant hardening throughout 2025, with reinsurers demanding higher premiums and imposing stricter terms and conditions. This was driven by increased catastrophe losses worldwide, inflationary pressures on claims costs, and concerns about emerging risks such as cyber threats. UK insurers faced substantially higher reinsurance costs at key renewal periods, particularly for property catastrophe coverage.

Some insurers responded by retaining more risk on their own balance sheets, whilst others sought alternative risk transfer mechanisms or adjusted their risk appetites. The capacity constraints were particularly acute in certain specialist lines of business, including professional indemnity and cyber.

Looking ahead to 2026

As we progress through 2026, several key themes are likely to dominate the UK insurance landscape. Insurers will continue to grapple with the challenge of balancing adequate pricing with affordability concerns, particularly as cost-of-living pressures persist for many consumers. The industry must also navigate the ongoing transition to more sustainable business models, incorporating climate risk considerations into underwriting and investment decisions.

Technological innovation presents both opportunities and challenges, with artificial intelligence and data analytics offering potential efficiency gains whilst also raising questions about algorithmic fairness and data privacy. The cyber insurance market is expected to evolve rapidly as businesses face increasingly sophisticated threats.

Regulatory scrutiny will remain intense, with insurers needing to demonstrate ongoing compliance with Consumer Duty requirements whilst adapting to potential new regulations around climate disclosure and sustainable finance. The sector's ability to maintain profitability whilst delivering fair customer outcomes will be critical to its long-term sustainability and social licence to operate.

The UK insurance market enters 2026 facing a complex array of challenges, requiring innovation, adaptation, and careful risk management to navigate successfully.