7 Influences Redefining Property and Casualty Insurance
February 26, 2025
These seven factors are influencing how underwriters set property and casualty insurance rates in 2025.
These seven factors are influencing how underwriters set property and casualty insurance rates in 2025.
Over the past several years, the property and casualty insurance industry has faced a prolonged hard market due to rising claim frequency and severity, social inflation, evolving cyber risks, and catastrophic natural disasters. During this time, carriers responded by tightening underwriting standards, reducing capacity, and increasing premiums across most lines of coverage.
The Miller Group’s 2025 trends outlook highlights that the market is mostly positive, with stable or competitive rates expected for low-risk policyholders. Yet natural disasters, geopolitical conflicts, reinsurance capacity, AI developments, and other factors are still at play. Business owners and leaders should be aware of how these influences drive up insurance claims costs and yearly rates to help them best understand their risk program.
Extreme weather events—such as hurricanes, tornadoes, hailstorms, and wildfires—have become increasingly devastating and costly. What’s worse, these events impact more than just businesses in their geographic area. In 2024, 27 weather and climate disaster events caused over $1 billion in losses across the United States, according to the National Oceanic and Atmospheric Administration.
Many weather experts believe severe storms, extreme temperatures, wildfires, and flooding are the new norm. As these catastrophes become more frequent, the insurance industry must adopt innovative solutions to keep up with weather-related losses. Moving forward, businesses can expect to encounter additional emphasis on weather readiness from carriers.
Recent geopolitical disruptions, including the Russia-Ukraine conflict, US-China trade shifts, and the Israel-Hamas war, have significantly impacted global trade and supply chains. These events have led to tariffs, sanctions, material shortages, and higher replacement costs, with experts estimating a 7% rise in supply chain costs. However, this is subject to change as the new presidential administration takes new action.
Additionally, insurers are tightening coverage for businesses operating in conflict zones or politically unstable areas. War exclusions, common in property and cyber policies, often deny claims for damage caused by hostile nation-state actions. To address this, some carriers are revising policy language and introducing a stricter application process to clarify coverage.
To reduce risks, businesses should monitor trade policies, consider domestic production, and implement strong loss control measures, such as cyber risk assessments and enhanced security protocols. Maintaining open communication with carriers about coverage limits is key to handling exclusions and reducing disputes.
Third-party litigation funding (TPLF) and shifting public sentiment are significantly influencing court cases and jury awards, impacting how insurance underwriters evaluate coverage. TPLF allows third parties to finance lawsuits in exchange for a portion of settlements, increasing the number and cost of cases, sometimes reaching seven figures. Meanwhile, growing distrust of large businesses has led juries to sympathize more with plaintiffs, often resulting in larger awards. The rise in nuclear verdicts (awards of $10 million or more) adds to uncertainty and risk, forcing underwriters to rethink their coverage strategies.
These concerns are causing insurers to scale back capacity and limit coverage for businesses in industries prone to large verdicts (e.g., trucking). The unpredictability and cost of excess liability coverage have driven many insurers to exit the market, leaving some businesses vulnerable to devastating financial consequences in the face of a large settlement.
AI technology includes machines and devices that simulate human intelligence processes. Common applications include computer vision solutions (e.g., drones), natural language processing systems (e.g., chatbots), and predictive and prescriptive analytics engines (e.g., mobile applications).
In property and casualty insurance, AI can enhance loss control and claims management by improving workers’ compensation outcomes, streamlining workflows, and reducing claim complexity. It can diagnose injuries, create treatment plans, detect patterns, identify root causes of incidents, and suggest prevention methods. AI also boosts decision-making with predictive insights, automates processes, aids due diligence, and reduces liability risks. Insurers can use AI to detect fraud, assess risks, and offer 24/7 claims support.
However, using AI also introduces risks, including biased decision-making, data privacy concerns, misuse by cybercriminals, the rise of autonomous vehicles, and increasing compliance laws enacted across the country.
Reinsurance allows insurance companies to transfer part of their risk to a third party, reducing financial exposure and improving stability. It helps insurers manage losses, expand coverage, and maintain solvency. This plays a key role in stabilizing the insurance industry.
Yet the reinsurance sector faces challenges from rising demand and increased CAT losses, leading to higher payouts and lower profitability. These issues have driven up reinsurance costs for primary insurers, creating a hardened market. The commercial property reinsurance space is particularly impacted by more frequent and severe weather events, causing primary insurers to raise rates and limit capacity for insureds.
According to a January 2025 report from Fitch Ratings, reinsurers have lowered their prices when renewing contracts (as of January 1, 2025), mainly due to abundant capital in the market. For businesses purchasing insurance, the reinsurance market’s favorable conditions may result in more stable or slightly reduced premiums in 2025. Despite the lower prices, the reinsurance sector remains financially strong, which should ensure continued access to coverage without a significant drop in quality.
Inflation has significantly impacted the property and casualty insurance sector, administrative costs, and premiums. After peaking in 2022 with a 40-year high CPI, inflation cooled in 2023 and 2024, with a 2.9% year-over-year rise in December 2024. However, factors like wage growth, oil prices, and housing costs may keep inflation under pressure, with core CPI potentially stabilizing around 2.5% by mid-2025.
Medical and wage inflation are driving costs, especially for workers’ compensation. Rising medical care costs, fueled by expensive drugs, mental health demand, and labor shortages, are projected to increase by 8% in the group market and 7.5% in the individual market, the highest in 13 years. Wage inflation could lead to higher workers’ compensation premiums and payroll errors, despite state efforts to align wages, benefits, and premiums. Medical severity and high-cost medications add further challenges to stabilizing costs.
Remote and hybrid work have become commonplace due to cost savings, work-life balance, and post-pandemic policies. These setups boost productivity, cut costs, and offer flexibility, but employers must address unique challenges as remote work evolves in 2025, especially around cybersecurity and workplace injuries.
Remote work increases cyberattack risks due to weaker security outside the office. Employers can address this by enforcing VPNs, multifactor authentication, and providing secure devices. Training employees on safe practices, like avoiding public Wi-Fi, is also crucial.
Employees must understand their privacy rights when working remotely. Work done on home devices may still be subject to employer monitoring. Employers should clearly outline monitoring policies and obtain consent to comply with privacy laws.
Remote work can also complicate workers’ compensation. One example is verifying home office injuries without witnesses. It also creates challenges when employees live in different states, requiring compliance with varying laws. Employers should update policies to cover home office injuries and define work-related incidents.
Adapting to the evolving landscape of property and casualty insurance in 2025 requires strategic planning and proactive solutions from employers. By addressing these seven factors, businesses can foster a resilient and compliant workforce.
For a look at how these trends impact specific coverages and rate forecasts, download The Miller Group’s Property & Casualty Trends ebook or contact an experienced advisor.
Data and trends in this story are drawn from the 2025 Commercial Insurance Market Outlook by Zywave, with additional updates and analysis from The Miller Group.
