The commercial property and casualty (P&C) insurance market is continuing to adjust following a series of significant natural catastrophes in early 2025.
According to USI Insurance Services’ 2025 Commercial Property & Casualty Mid-Year Addendum, global insured catastrophe losses reached an estimated $50 billion in the first quarter, placing it among the highest first-quarter losses recorded.
In January, the Palisades and Eaton wildfires in Los Angeles destroyed more than 16,000 structures across 57,000 acres, resulting in $53.8 billion in damages, with insured losses expected to exceed $30 billion.
Severe convective storms and tornado outbreaks across the southern and eastern United States in March added to the total losses. Additionally, a 7.7 magnitude earthquake in Myanmar caused $600 million to $900 million in losses for Thai insurers, primarily absorbed by global and regional reinsurers.
USI said that the first quarter of 2025 marked the second highest insured catastrophe loss for a first quarter on record, significantly above the historical average. With global insured catastrophe losses surpassing $100 billion for five consecutive years, market participants are recognizing a shift toward higher sustained losses.
Despite these figures and forecasts of an active hurricane season, insurers and reinsurers remain well-capitalized, and market capacity is stable.
In parallel to these catastrophe developments, wildfire activity in the United States has escalated. So far in 2025, more than 28,000 wildfires have burned over 1 million acres, exceeding the 10-year average.
The increased frequency and intensity of wildfires have led insurers to reexamine their underwriting strategies, with many raising premiums, limiting capacity, or exiting high-risk areas altogether.
Property insurance renewals during the first half of 2025 reflected increased competition. USI’s report states that single-carrier programs began experiencing rate reductions, and shared and layered programs faced heightened competition, especially for accounts with favorable risk profiles.
Rate decreases between 5% and 30% were reported, with London and Bermuda markets contributing to premium reductions, in some cases achieving 30% savings over incumbent carrier renewals.
Challenges persist for accounts with specific risk exposures. According to USI, properties exposed to wildfires, older wood-frame habitational risks, wind-exposed properties with aging roofs, food manufacturing facilities, and subsidized housing continue to experience more difficulty securing favorable terms or rate decreases.
Despite the mounting losses tied to extreme weather events, US property and casualty insurers reported a sharp increase in profitability in 2024. Industry earnings nearly doubled, reaching $171 billion compared to $92 billion the previous year.
USI notes that the profit growth was largely driven by significant price increases across most lines of business, enabling insurers to offset higher claims costs. This profitability trend has reinforced capital positions even as insured loss activity remains elevated.
USI projects that the second half of 2025 will present further opportunities for insureds to negotiate expanded coverage, higher limits, and reduced deductibles. The continued influx of capital into insurance and reinsurance markets is expected to create a softer market environment.
However, the sector could experience disruption from rising raw material costs and tariffs, reversing some of the downward trends in building and equipment valuations that began following the COVID-19 pandemic.
The tariff policies currently in place are beginning to impact insurance costs. Recent tariffs on imported goods have led to increased construction material prices, which are now feeding into homeowners’ insurance premiums.
The average US homeowner could see premiums rise by approximately $106 in 2025. In states more vulnerable to climate-related risks, such as Florida and Louisiana, premium increases could reach as high as $464 and $418, respectively. The escalation in construction costs also affects commercial properties, pushing up replacement cost valuations and, subsequently, insured values and premiums.
Replacement cost valuations from January 2024 to January 2025 rose by 5.5% nationwide, according to USI, with states like Maine, Tennessee, Florida, Kansas, Minnesota, Montana, Idaho, Nevada, and Washington reporting increases between 7.4% and 10.1%.
Increased replacement costs are likely to drive higher policy limits and premiums, while raw material shortages could affect loss recovery timelines.
Efforts to address insurance availability in high-risk regions have intensified. USI highlights the growing reliance on Fair Access to Insurance Requirements (FAIR) plans, which provide insurance coverage when the private market cannot.
Currently, 35 states and the District of Columbia operate FAIR plans, covering nearly three million properties and more than $1 trillion in exposure.
However, the limitations of these FAIR plans are becoming more apparent. After the Palisades and Eaton wildfires, some homeowners with properties left standing have encountered challenges with the California FAIR Plan. Policyholders seeking compensation for toxic smoke and soot damage found that coverage is restricted to permanent physical changes, excluding microscopic contamination.
USI said that disputes over what constitutes covered damage are expected to intensify as climate-driven events become more frequent and complex, exposing gaps in the safety nets designed for high-risk areas.
On the casualty side, the workers’ compensation market remained profitable in early 2025, although USI reported that insurer net profit margins are narrowing due to a decrease in reserve redundancy. While the sector maintained a combined ratio averaging 91% from 2015 to 2023, reserve benefits are showing signs of weakening.
Commercial automobile, general liability, and umbrella/excess liability markets are maintaining sufficient capacity. Rate increases have largely stabilized compared to earlier periods. According to USI, workers’ compensation lines continue to benefit from a competitive environment with ample capacity, and premiums are trending downward, despite rising payrolls.
For smaller commercial automobile fleets, rates remain mostly stable. Technological advancements have eased the industry’s longstanding driver shortage, which dropped from the top concern to ninth place based on American Transportation Research Institute rankings.
Legislative developments are also influencing the market. USI pointed to tort reform efforts in Georgia and Texas that could reduce litigation costs, which may ultimately lead to lower insurance premiums and improved coverage availability for high-risk sectors such as trucking.
General and products liability lines are seeing more moderate rate increases, with some segments achieving flat renewals where rate adequacy has been met. The umbrella and excess market remains under pressure.
Middle-market buyers can expect rates to stay flat or increase up to 10%, while risk management accounts could see rate hikes as high as 20%, depending on loss history and business class, USI reported.
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