UK insurers are expected to see steady but slow growth in premium income over the next three years as the economic recovery continues and premium increases return to levels closer to the long-term average of 3.4%, recorded between 2010 and 2019, according to the latest EY Item Club Outlook for Financial Services.
After two years of significant premium increases driven by cost pressures, growth is projected to stabilise as interest rates decline and costs ease. Non-life insurance premium income is forecast to grow by 5.2% in 2025, down from 8.4% in 2024, followed by 4.3% in 2026 and 3.6% in 2027. Life insurance premium income is expected to grow by 4.4% in 2025, compared with 5.8% in 2024, before slowing to 3.3% in 2026 and 3.7% in 2027.
An improving housing market and real income gains are expected to support demand for non-life insurance products, including home and motor policies.
Supply chain issues that previously increased costs for replacement parts, such as washing machines and vehicle components, have eased, allowing insurers to moderate premium increases. As a result, non-life insurance premium income is projected to grow at a slower rate over the coming years.
Meanwhile, demand for life insurance policies remains stable, with workforce growth contributing to an increase in workplace pensions.
However, EY Item Club warns that slower growth in household disposable income could impact the overall expansion of the life insurance sector. Growth in life insurance premium income is expected to slow in the coming years, in line with broader economic trends.
Martina Neary, EY UK insurance leader, stated that the UK’s economic recovery is creating a positive environment for insurers and their customers, with steady growth expected in the sector over the coming years. She noted that falling interest rates and stabilising inflation are likely to reduce consumer caution and support demand for both general and life insurance products. While premium growth is projected to be moderate in the near term, she emphasised that the market remains resilient.
“That said, ongoing geopolitical uncertainty and unpredictable weather patterns pose potential risks to the growth outlook. As ever, UK insurers will need to continue to strike a careful balance between managing costs, making strategic adjustments in line with market changes, supporting their customers – particularly the most vulnerable – and exploring new avenues for sustainable growth and innovation,” Neary added.
The UK economy grew by 0.1% in the fourth quarter of 2024, according to the UK’s Office for National Statistics, which noted that the services and construction sectors played a key role in the performance of the economy.
Earlier this month, the Bank of England cut its benchmark interest rate for the first time this year to 4.5%. This was driven by sluggish growth and a recent decline in inflation. The BOE said it expects the inflation rate to fall back to its 2% target by 2027, despite the fact that it recently climbed to 3.0%.
