Property Insurance Has a Greedflation Problem

On top of the cost increases necessary to cover climate change, insurers add $100-200 billion extra for themselves

The VPA Chat: Kyla Scanlon interviews Brian Shearer on Insurance Prices.

Register for a jointly held webinar by Vanderbilt Policy Accelerator and Americans for Financial Reform on this topic on April 30 at 1:00pm EST.

Property and casualty (P&C) insurance—including auto insurance, homeowners insurance, workers’ compensation, and basic liability insurance for businesses—quietly crossed a huge milestone in 2024. For the first time in history, American consumers and businesses are paying more than $1 trillion in premiums to property insurance companies every year. It is truly an astonishing amount of money.

That’s more than total annual defense spending in the U.S.

It’s 10% of total consumer expenditures.

And it’s about 20% of the total tax revenue of the federal government.

That last comparison is particularly apt because more than a century ago, insurers, policymakers, and the Supreme Court all recognized that property insurance was, essentially, a “tax” used to cover a community’s losses from unpredictable accidents and natural disasters. Indeed, many types of insurance are functionally, or even legally, mandated – you have to buy them. In a new academic article, “Regulating Insurance as a Public Utility,” forthcoming in the Columbia Business Law Review, I tell the history of this sector, showing how Progressive Era policymakers reined in overpriced insurance with public-utility style laws that give state insurance commissioners the power and duty to reject premiums that are too high.

Fast forward 100 years and the “taxes” are, once again, way too high. Between 2020 and 2024, property insurance premiums increased almost 50%, more than double the speed of inflation. And in polls, 85% of voters say they are concerned with high property insurance premiums.

The insurance industry and the media claims climate change has forced price increases, leading to today’s insurance crisis. It has no doubt increased claims costs. But the margins between the amount of money collected from businesses and consumers, and the amount of money paid on claims, are also at historic highs, and they are actually increasing. Right now, for every $1 collected in premiums, insurers only spend $0.62 to cover claims.

So what are they doing with the rest of the money? In 2024, industry profits were about double their typical annual profits, including from just the year before. Insurers spent about $135 billion in 2023 just to acquire customers with advertising and agent commissions, in a market where customers are usually legally required to participate. Insurers paid $90 billion fighting claims, and as a consequence, policyholders are regularly complaining about the claims process. And they also spend lavishly on corporate or investor perks and returns. For example, State Farm alone owns four private jets, and in 2025 alone, Progressive spent $15 billion on stock buybacks and dividends.

In fact, by my estimates, the property insurance industry in 2024 took in about $550 billion more in revenue than it needed to cover claims from that year. Of course, the industry needs some of that money for reasonable overhead costs and profit. But it’s ludicrous to suggest they need 2% of all US GDP.

This excess “tax” is a huge problem, but it also presents a huge policy opportunity for policymakers across the political spectrum promising to do something to lower prices. There is $100-200 billion of fat in property insurance right now, and it’s one of the rare markets where the government has long had its finger on the price button.

Politically, solving this problem is also a rare unicorn in that it could be both an economic populist effort to lower salient costs like auto and homeowners insurance bills, and pro-business (even big business). The polling for insurance pricing reform is very strong: 78% of voters are concerned about high property insurance prices, 85% blame insurer executives for the high prices, and more than 60% say the federal government isn’t doing enough on this issue. But people aren’t the only ones being price gouged. Insurers are over-charging the rest of corporate America in their liability insurance premiums, workers comp premiums, and other forms of business insurance.

With that in mind, in a white paper released along with my academic article, I suggest states and the federal government do the following to lower property insurance prices. These reforms aren’t new or radical–each one has already been done somewhere in the country. But they can save consumers and businesses about $150 billion per year.

• Loss-Ratio Floor. States or the federal government could pass an 80% loss-ratio floor, requiring rebates to customers any time the insurer drops below the threshold. This proposal borrows from the medical loss-ratio rule from the Affordable Care Act already in place for health insurance, but would work better in this context given some differences between the two sectors. I estimate this policy would save $150 billion every year.

• State commissioners should deny unnecessary 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.

• 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: Borrowing from an idea currently being enacted for energy utilities, 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.

• 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 a common tool used to regulate other utilities, and something a few states have already done for auto insurance.

• State-run insurers. Many states have “residual insurers” that are mandated and sometimes run by the state. States could convert these insurance plans into insurers that operate in the open market and not just as insurers-of-last-resort, both to provide better services to customers, and to 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.

Politicians from both sides of the aisle are promising to address “affordability.” If they want to deliver on those promises, they’ll need policies that drop prices tangibly and quickly in at least a few markets. These reforms to the insurance sector would be a good start.