Insolvency is becoming a material risk for UK insurers

Date: Friday, January 9th, 2026 by Michaela Hickson.

Higher insolvencies rates tend to lead to increased claims on policies such as directors’ andofficers’ liability insurance, creating solvency issues for insurers.

The developing regulatory environment, coupled with the current economic landscape and softening market conditions, is increasing the pressure on insurers and raising the risk of insolvency

Several factors are contributing to insolvencies and failures becoming a material risk for insurers.

Some of these contributing factors include the economic landscape in the UK; softening market conditions inthe London and Lloyd’s insurance markets; increasing volumes of claims driven by high insolvency rates and more frequent climate-related events such as wildfires and hurricanes; and evolving risks associated with advancements in technology and ongoing regulatory reforms.

High insolvency rate

Corporate insolvency rates continue to remain high in UK. In October 2025, the number of registered company insolvencies in England and Wales was 2,029. This was 7% higher than the number of company insolvencies in October 2024. Higher insolvencies rates tend to lead to increased claims on policies such as directors’ and officers’ liability insurance, creating solvency issues for insurers.

On October 14, 2025, Gibraltar-based motor insurer Premier Insurance Company was placed into administration as the firm was unable to pay its claims. The firm stopped underwriting on December 31, 2024 and the Financial Services Compensation Scheme (FSCS) declared the firm in default on October 14, 2025.

The FSCS has stepped in to protect most of the policies the firm sold to individuals and small businesses in the UK. This failure is expected to affect more than 16,000 policyholders and is reflective of the disruption arise in insurer insolvencies will cause.

According to a report by the Property and Casualty Insurance Compensation Corporation, close to 1,000 insurance companies failed across 71 countries from 2000 to 2024.

Underwriting discipline

With market conditions softening, there is an increased risk of lapses in underwriting discipline, particularly where underwriting controls are being relaxed. Additionally, both the volume and value of claims are expected to rise for climate-related events and for cyber insurance exposures. Emerging technology such as artificial intelligence (AI) could potentially heighten this risk further as insurers could be exposed to claims where policies are silent on AI coverage.

Regulatory reforms, including the transition from the EU Solvency II regime to Solvency UK (freeing up further capital and expanding asset eligibility), have introduced several amendments to the UK’s prudential regime. The Consumer Duty continues to remain a focus area for the Financial Conduct Authority and recently, the Prudential Regulation Authority published a policy statement,
Enhancing banks’ and insurers’ approaches to managing climate-related risks
.
The developing regulatory environment, coupled with the current economic landscape and softening market conditions, is placing additional pressure on insurers, meaning the risk of insurer insolvencies will continue to rise.

Credit: Ross Baker is a partner at Beale & Co, the UK member of Global Insurance Law Connect.

This article was first published in Insurance Day on 9 January 2026