A new analysis suggests Americans are being overcharged by $150 billion annually to insure their homes, autos and businesses — and it proposes federal guardrails so that a public beset by affordability pressures could see savings.
The analysis by the Vanderbilt Policy Accelerator obtained exclusively by The Associated Press details how insurers are paying out less on claims after an accident, natural disaster or other misfortune than they did decades ago. For every $1 collected in premiums, insurers reimbursed 62 cents for claims in 2024, down from an average loss ratio of 80 cents in the 1980s and 1990s.
The analysis wades into a thorny set of economic and political questions as insurance companies are managing the potential risks of climate change when the cost of groceries, gasoline and housing are a frustration for many voters. Insurance companies say they have hiked premiums because of rising prices for homes and autos and the expenses of fixing them.
“The fact that the loss ratios are so low means that the insurance industry is charging too much,” said Brian Shearer, director of competition and regulatory policy at the Vanderbilt University think tank and a former senior adviser at the Consumer Financial Protection Bureau.
The insurance industry said its current loss ratio reflects the costs for insurers in recent years and the steps deemed necessary for ensuring that insurance funding is stable and solvent.
“Current loss ratios reflect the impact of enormous financial losses over the last several years and the steps insurers have taken (to) maintain and restore financial strength so funds are available to pay future claims,” Don Griffin, vice president for policy and research at the American Property Casualty Insurance Association, said in an emailed statement. “Loss ratios in the 1990s were driven to nearly unsustainable levels by Hurricane Andrew in particular.”
After reviewing the analysis, Griffin added in a statement that the “state-based regulatory system is best suited” for overseeing the insurance industry as opposed to the federal guidelines in the report. He also said that mandates on loss ratios would harm customers.
“We have seen what happens when government limits insurers’ ability to appropriately price policies: markets deteriorate and policyholders are left with fewer options for coverage at higher prices,” he said.
While President Donald Trump won a second term on the promise to contain inflation, he has also gutted institutions such as the CFPB that sought to find potential savings. Housing costs have been particularly acute. Average mortgage rates remain above 6%, and an executive order by Trump to increase construction of new homes would still take years to bend the curve on housing prices.
When Trump, a Republican, signed the order on housing regulations in March, he emphasized that he was eliminating the heightened standards to protect homes against damage from natural disasters and improving energy efficiency because he said they were increasing construction costs.
“We will slash many of these pointless regulations that do nothing for safety and add lots of costs,” he said at the signing.
Research by the economists Benjamin Keys and Philip Mulder found that average premiums for home insurance climbed an inflation-adjusted 28% between 2017 and 2024 to an annual cost of $2,750. Their research found reasons for the increases: Roughly a third came from higher construction costs, and another 20% came from greater disaster risks. But it also noted the higher costs for financial instruments such as reinsurance, which insurers purchase to protect them from catastrophic financial losses.
The Vanderbilt analysis by contrast looks at the gap between what insurers charge and what they pay out to customers. By returning to the loss ratio of 80 cents paid out for each $1 collected, it estimates that households and businesses could have saved roughly $150 billion from the $1 trillion-plus paid in premiums in 2024.
The analysis includes proposed legislative language for the federal government to set a higher loss ratio for insurers. Currently, state governments primarily regulate insurance, but a federal mandate would be harder for companies to challenge.
The analysis further argues that insurers are using the premiums “to pay for corporate perks, corporate jets, stock-buy backs, excessive executive compensation, excessive dividends, excessive advertising, and excessive agent commissions.”
“Companies are competing against each other, not based on price but just based on brand awareness,” said Shearer, the author of the analysis, arguing that too much money is spent on marketing.
