Property and Casualty Insurance in Peril
The existing state-based regulatory structure for insurance in the U.S. is facing pressures that could lead to fundamental changes, particularly in the realm of catastrophe coverage. The frequency and severity of billion-dollar-plus natural disasters have surged in recent years, creating significant challenges for the insurance sector and prompting a critical examination of the current regulatory framework.
In recent times, the U.S. has witnessed a dramatic increase in the number of natural disasters resulting in damages exceeding a billion dollars. According to the U.S. National Center for Environmental Information (NCEI), since 2020, there have been 115 such events, totaling nearly three-quarters of a trillion dollars in damage. The cumulative impact, considering secondary and tertiary effects, likely exceeds several trillion dollars. These events have not only affected individuals and communities but have also significantly impacted the financial systems and the insurance sector.
This situation has led to extensive public debate in the media, Congress, among regulators, creditors, investors, and the public, regarding the balance between coverage priorities, solvency concerns within the insurance industry, and the public’s demand for affordable policies.
Regulatory Framework Under Scrutiny
Members of Congress have started to voice concerns and are exploring the risks inherent in the current state-based regulatory model. For example, in January 2025, Senator John Kennedy (R-LA), a member of the Senate Banking Committee, was reportedly considering a new initiative aimed at stabilizing the insurance sector.
The core of this debate revolves around the ability of property and casualty insurance companies to continue underwriting certain risks, especially in states that may restrict their ability to charge premiums that adequately cover rising rebuild costs. Discussions are also ongoing about how and where the increased costs associated with these disasters will be allocated.
Senator Kennedy has stated that the aim is to develop a program that would help victims of catastrophes without the need for substantial federal subsidies. However, other members of Congress hold differing views. Some, like Senator Mike Rounds (R-SD), believe that it is not the appropriate role of the federal government to regulate premiums or to interfere with open insurance markets. Senator Elizabeth Warren (D-MA), the ranking member of the Senate Banking Committee, also expressed interest in working with Republicans to reform the National Flood Insurance Program (NFIP) and account for the effects of natural disasters on the private insurance market.
The Federal Government’s Role
Traditionally, public discourse around the role of the federal government in licensing, regulating, or setting standards for the U.S. insurance market has been limited. Given the complex mix of federal, state, and local regulations and the oversight of various regulatory bodies, the landscape of insurance provision in the U.S. remains complex.
Perhaps due to this complexity, insurance regulatory matters have typically not been major news items. However, the high costs and the widespread effects of recent events, such as the California wildfires and Hurricane Helene, have significantly altered this dynamic. The surge in catastrophic natural disasters is now a front-page concern, as homeowners, businesses, and families face higher premiums and restricted coverage choices, either directly or indirectly.
The losses from the California wildfires are estimated to exceed $30 billion, and the impact of Hurricane Helene could surpass $60 billion. Several states are grappling with the question of whether individual state interests might diminish the necessary cooperation for effective public policy outcomes. Federal intervention would require states to recognize that their collective interests might be better served by a revised regulatory structure, even if individual state mandates remain in place.
Investigations and calls for public hearings will continue to fuel the conversation. In January 2025, Senator Josh Hawley (R-MO) sent a letter to insurance companies regarding denied claims related to Hurricane Helene. He has asked representatives from insurance companies to testify before the Senate Homeland Security and Governmental Affairs Subcommittee, which he chairs, to clarify operational practices.
Managing Catastrophic Risk
The increased scrutiny of operations, claims, and regulatory practices, combined with differing perspectives on long-term federal and state program structures, may necessitate a broad rethinking of how catastrophe risk is managed. The property and casualty insurance industry will have to monitor the congressional debate while highlighting the key role it plays and the limitations it faces.
It is clear that the underlying assumptions surrounding catastrophic events have dramatically shifted. The number of billion-dollar catastrophic events in 2024 nearly quadrupled the average observed between 2000 and 2009 and doubled the average for the period 2010-2019.
Regardless of discussions about root causes, the financial impacts on an already strained system are apparent. The costs linked to these events rose by over 20% in 2024 compared to the five-year average, prompting some insurers to withdraw from high-risk areas strategically.
Given this evolving environment, remaining carriers might encounter difficult strategic decisions about conducting business, adjusting premiums, and determining coverage. They are also facing increased state and federal regulatory requirements. Insurance and reinsurance carriers are being driven to be more agile than ever. The insurance industry’s adaptation to manage rising losses, while the federal and state governments try to constrain the pricing of that risk, creates an inherent conflict. Organizations facing these problems are increasingly depending on operational efficiencies, AI-driven decision making, advanced risk modeling, data-driven segmentation, and portfolio prioritization to stay competitive.
Over the next several years, both private and public elements of the system may have to adjust to a fundamental shift in expectations. Higher impact catastrophes, increased frequency, and broader devastation zones will raise the costs of handling these events. A combination of private insurers, state-backed insurers, guaranty funds, and disaster relief funding will be needed to cope with the greater societal effects expected. Policies, especially in high-risk regions, may lead to higher premiums, which in turn, could alter the economics of living and working in these areas permanently. The prospect of amplified public attention, stricter regulatory oversight, and more federal involvement underscores the importance of adaptation for the U.S. insurance industry.
