Property insurance premiums are growing rapidly, now exceeding $1 trillion every year. Climate change is part of that story, increasing the cost of homeowners insurance to cover increasing natural disaster damage. But a new white paper and academic article released by the Vanderbilt Policy Accelerator (VPA) show that insurers are inflating prices for consumers and businesses far beyond what is necessary.
“Insurers are spending more and more on things like executive compensation, corporate jets, advertising campaigns, dividends, stock buybacks, and profits,” said Brian Shearer, director of competition and regulatory policy at VPA and author of the papers. “The insurance industry is price-gouging Americans, and it’s time for insurance commissioners and Congress to put an end to these practices.”
Shearer’s academic paper, “Regulating Insurance as a Public Utility,” forthcoming in the Columbia Business Law Review, explains the long history, theoretical basis, and practical reasons why insurance has long been regulated like a public utility, and proposes options policymakers could use to push back on this form of price-gouging and save customers $150 billion every year.
Unlike many markets, insurance prices are a matter of public policy. More than a century ago, officials enacted a set of policies that treat insurance as a public utility—akin to electricity or water—to ensure that everyone has fair and affordable access to insurance. The most important of these policies was rate-setting authority that tasks state insurance commissioners with approving or rejecting prices to ensure premiums are affordable and to prevent price-gouging.
In recent years, academics and industry advocates have proposed deregulating the industry and eliminating the authority of state insurance commissioners to ensure affordable prices. The claim is usually that climate change is driving higher rates, necessitating the elimination of affordability regulations. Shearer’s two papers show that insurance premiums are already far too high, even after accounting for rising costs due to climate change, and that deregulation would only make the problem worse.
The papers demonstrate that prices are inflated, even after accounting for the climate-change fueled rise in claims:
- Property insurance premiums are now a $1 trillion cost: For the first time in 2024, property insurance premiums exceeded $1.03 trillion in the United States, more than the entire U.S. military budget.
- Low 61.8% Loss Ratios: Average loss ratios for property insurance were just 61.8%. Loss ratios are the percent of premiums that go to paying out claims. That means for every $1 spent on premiums, only $0.62 is spent on claims. Loss ratios in the 80s and 90s were around 70-80%.
- Homeowners Insurance Prices Increasing Faster than Claims Cost: Between 2020 and 2024, homeowners insurance losses increased by 40% due to climate change. But in that same time, the prices increased by 52%, while loss ratios remained low at 61.5%.
- Insurers are Making High Profits Even in Disaster-Prone States: Contrary to typical framing by the industry, loss ratios for homeowners insurance in California are below average. In 2024, California homeowners insurance loss ratios were just 47.24%; the state’s 5-year average is below 50%.
- Record $166 billion profits in 2024: Nationally, profits for the property insurance industry nearly doubled in 2024 to $166 billion and stayed high in the first part of 2025.
- The industry spent $135 billion on “selling expense”: The insurance industry lavished $135 billion on selling expenses like advertisements and agent commissions to acquire customers in 2023, and likely more in years since.
- Executive Compensation: CEOs from the top 10 insurers were paid more than $250 million, collectively, in 2022 and 2023.
- Frivolous spending on corporate jets: State Farm alone bought four private jets in 2023 and 2024.
- Excessive returns to shareholders: The largest publicly traded insurer, Progressive, spent almost $15 billion on stock buybacks and dividends in 2025.
Even though climate change is contributing to increased claims costs, policymakers can lower prices by reducing excess non-claims expenses. Today’s white paper offers solutions to do this:
- Loss Ratio Floor. An 80% loss-ratio floor, which would cap the amount of premiums that can go to things other than paying out claims and would save customers $150 billion every year. This proposal borrows from the medical loss-ratio rule already in place in health insurance through the Affordable Care Act, though it would be more effective in the property insurance market.
- State commissioners should deny rate increases. State insurance commissioners across the country already have authority to reject price increases. State commissioners could deny increases to insurers who have low loss ratios, excessive advertising expenses, high dividends, stock buy-backs, or other excessive non-claims costs.
- Enact exit restrictions. Insurers often use the threat of exiting a state to pressure insurance commissioners to accept price increases. States could give their insurance commissioners more leverage by passing penalties or otherwise making it harder for insurers to exit a market. This is common in other utility-regulated markets and something a few states have enacted for auto insurance.
- State-run insurers. Many states have “residual insurers” that are mandated by the state. States could convert these insurance plans into insurers that operate in the open market, to provide better services to customers and mitigate the threat of insurers leaving in response to stricter price scrutiny.
- Public reinsurance. States and the federal government could create public reinsurance programs that offer lower rates than private reinsurers, in order to lower the price of retail insurance.
- Transparency. States and the federal government can require more public disclosure of non-claims costs like executive compensation, money spent on advertising and agent commissions, dividends to parent companies, entertainment budgets, and private jets.
- Prohibit unnecessary expenses: States can ban insurers from spending premium dollars on unnecessary expenses like lobbying, political campaigns, private jets, stock buy-backs, entertainment, excessive advertising, and unreasonable executive compensation. States are already doing this for energy utilities.
Read the academic article, the white paper, or learn more about the reports on VPA’s Substack.