Property and Casualty Insurance: Navigating a System in Crisis
In the United States, the existing framework for state-based regulation of property and casualty insurance may be on the verge of a substantial transformation, particularly in the realm of catastrophe coverage. The frequency and financial impact of natural disasters have reached unprecedented levels in recent years, placing immense strain on the insurance industry and prompting intense debate among lawmakers, regulators, and the public.
Hurricane Ian’s devastation highlights the challenges facing the insurance industry.
The Soaring Costs of Catastrophes
The scale of devastation from severe weather events has accelerated dramatically. The U.S. National Center for Environmental Information (NCEI) reports that the number of billion-dollar disasters has nearly doubled in the last five years. Since 2020 alone, the U.S. has faced 115 separate billion-dollar-plus disasters, resulting in almost three-quarters of a trillion dollars in damages. These figures do not account for the secondary and tertiary economic consequences, which likely exceed multiple trillions of dollars.
These disasters have had a crippling effect on insurance providers. The intersection of coverage priorities, concerns about solvency, and the public’s demand for affordable insurance has become a major talking point in the media, congressional hearings, and public discussions.
Congressional Scrutiny and Regulatory Frameworks
Members of Congress are now exploring the risks that the existing state-based regulatory framework poses. Senator John Kennedy (R-LA), a member of the Senate Banking Committee, is reportedly considering a program that would help stabilize the insurance sector.
The core of the debate revolves around whether property and casualty insurance companies can continue to underwrite risks in states that limit the premiums insurance companies can collect to offset rising rebuilding costs. There is also keen interest in how the burden of these escalating costs will be allocated.
Senator Kennedy stated that the aim is not just to reform the federal Flood Insurance Program but to create a system to help victims of catastrophes such as fires, high winds, and hail without relying on extensive federal subsidies. Other members of Congress have different viewpoints on federal government involvement. For example, Senator Mike Rounds (R-SD) is taking the position that the federal government should not regulate premiums or interfere in the open market.
Senator Elizabeth Warren (D-MA), the Ranking Member of the Senate Banking Committee, has said she is interested in working with Republicans to reform the National Flood Insurance Program (NFIP), noting that the impact of natural disasters on the private insurance market must also be considered.
The Role of Government in Setting Insurance Standards
Traditionally, public discussions on the role or extent of the federal government’s authority in licensing, regulating, or establishing standards within the U.S. insurance market have been limited. The rules for insurance provision are complex, governed by a combination of federal, state, and local mandates and overseen by a diverse range of regulatory bodies.
The complexity may be one reason insurance regulatory issues rarely made headline news. However, with the increased cost and frequency of catastrophes, public discourse has shifted. More and more homeowners, families, and businesses are feeling the impact of fewer insurance options and higher premiums.
The losses from the recent wildfires in California alone are projected to surpass $30 billion. The impacts related to Hurricane Helene show the potential to exceed $60 billion. Several states, such as North Carolina, have already accelerated the debate on whether a state’s interests will affect cooperation needed to achieve a good, well-balanced public policy outcome. Federal intervention would require states to recognize that their collective interests might be better served by a revised regulatory structure, even though their mandates are limited to their state borders.
Calls for Investigations and Public Hearings
Investigations and calls for public hearings are in progress. In late January 2025, Senator Josh Hawley (R-MO) sent a letter to insurance companies referencing reports of denied Hurricane Helene damage claims. The letter requests that insurance company representatives testify before the Senate Homeland Security and Governmental Affairs Subcommittee, which Senator Hawley chairs, to shed light on operational practices.
Managing Catastrophic Risk
The increased operational scrutiny, in combination with different viewpoints on long-term state and federal program structures, may lead to a review of how catastrophe risk is handled. The property and casualty insurance industry will need to monitor developments in Congress while continuing to emphasize its essential role and inherent constraints.
The critical underlying assumptions and expectations related to major catastrophic events have already experienced a significant shift that cannot be disregarded. In 2024, there were almost four times as many $1 billion catastrophic events as the average from 2000-2009, and nearly twice as many as from 2010-2019.
Regardless of the causes, the financial repercussions for an already strained system are clear. Costs associated with such events increased over 20% in 2024 compared to the five-year average. This escalating trend has caused several leading companies to withdraw from high-risk areas.
As a consequence, remaining insurance carriers may have to make difficult decisions about the how, when, and where they will conduct business, adjust premiums, and provide coverage. They also face a trend of increased state and federal regulatory requirements.
The Future of Insurance
Insurance and reinsurance carriers must become increasingly nimble in responding to changing circumstances. Adaptation by the insurance industry to successfully manage rising and unpredictable losses, while the federal and state governments attempt to restrict the ability to accurately price that risk, creates an inherent conflict. Organizations responding to these challenges will increasingly depend on operational efficiencies, data-driven decision-making, advanced risk modeling, AI-enabled segmentation, and portfolio prioritization to remain competitive.
In the next several years, the entire system—private and public—may need to adapt to a fundamental shift in expectations. Higher impact and frequency catastrophes will only increase the costs to manage these events. Private insurers, state-backed insurers, disaster relief funding, and guaranty funds will shoulder the larger, expected societal effects.
Policies in high-risk areas, in particular, may see higher premiums, which in certain instances might permanently alter the economics of living and working in those areas. The rise in public attention, oversight from regulators, and potential federal involvement will only add to this reality, making it even more critical that the U.S. insurance industry adapts quickly.
