The current framework for state-based regulation could fundamentally change in the US for catastrophe coverage in a shockingly short time.
In the last five years alone, the annual rate for disasters in the US – resulting in a billion dollars or more –
In addition to their immediate impacts on individuals and communities, these natural disasters have had a devastating effect on financial systems and, more directly, the insurance sector. The conflict between coverage priorities, solvency concerns, and the public demand for cost-effective offerings has become a heightened topic in the modern public debate surfaced in the media, U.S. Congressional hearings, regulators, creditors, investors and public discourse.
Addressing the regulatory framework
Members of Congress are beginning to explore the risks from the current state-based regulatory framework. As recently as January 2025, Sen. John Kennedy (R-LA) who sits on the Senate Banking Committee, was reported to be, "weighing the development of a '
The debate centers on whether property & casualty insurance companies will be able to continue to underwrite certain risks within states that either plan to, or already limit, an insurance company's ability to charge premiums that adequately cover escalating rebuild costs. Moreover, the question of how and where the costs of these increased impacts will be allocated is being actively debated.
Sen. Kennedy was quoted as saying that the idea "is not just to reform the Flood Insurance Program" but to "
Other members of Congress are not as open to supporting federal government involvement. Politico reported that Sen. Mike Rounds (R-SD) is taking the opposite approach and does not consider it appropriate for the federal government to regulate premiums, interfere with an open market, and is limited in its ability to provide well-designed public policies for state-based insurance markets. In the same article, Sen. Elizabeth Warren (D-MA), Ranking Member of the Senate Banking Committee, stated she is interested in working with Republicans to closely examine reforming the National Flood Insurance Program (NFIP) and "must also account for the impact natural disasters are having on
Government's role in setting insurance standards
Traditionally, the debate in Congress on whether the federal government has a role, or even the authority, in licensing, regulating or creating certain standards in the US insurance market has not been extensively examined in public. Governed by a combination of federal, state and local regulatory mandates — and overseen by often equally diverse regulatory bodies — the rules regarding insurance provision in the U.S. remain complex.
Perhaps because of this complexity, insurance regulatory matters rarely made for front page news — but fast forward to 2025, and the cost and extent of the fires in California and hurricane in North Carolina may have changed the public discourse. The sharp increase in the volume and severity of catastrophic natural disasters has brought the conversation front and center, as homeowners, families, and businesses are impacted — either directly or indirectly — by fewer coverage choices and higher premiums.
The losses caused by the recent California wildfires alone are expected to exceed $30 billion, and Hurricane Helene-related impacts threaten to exceed $60 billion. Several states, like North Carolina, have already accelerated the debate for whether a state's self-interests will affect or likely reduce the cooperation necessary to achieve a balanced and superior public policy outcome. Federal intervention would have to convince states that while their individual mandates stop at the state border, their collective interests might be better served in a revised regulatory structure.
For now, investigations and calls for public hearings will continue to advance the conversation. Most recently, in late January 2025 Senator Josh Hawley (R-MO) issued a letter to insurance companies referencing reports related to
Managing catastrophic risk
The additional scrutiny on operations, claims, and regulatory practices — coupled with varying views on dealing with long-term state and federal program structures — could force a broad rethinking regarding catastrophe risk. Undoubtedly, the property & casualty insurance industry will need to continue to monitor the debate in Congress, while reinforcing continual emphasis on the essential role and inherent constraints.
What is already clear is that the underlying assumptions and expectations related to major catastrophic events have experienced a massive shift that cannot be overlooked or dismissed. Two thousand and twenty-four saw nearly four times as many $1B catastrophic events as were seen on average in 2000-2009, and nearly twice as many as were seen on average from 2010-2019.
Putting aside for a moment conversations of underlying causation, the financial impacts to a strained system are equally clear. The costs associated with these events increased over 20% in 2024 relative to the five-year average — and this escalated trend has forced a number of leading carriers to strategically withdraw from high-risk geographies.
Given the recent public debate and commentary, remaining carriers may be faced with difficult strategic choices of how, when and where they are able to conduct business, adjust premiums, and provide coverages — while also facing the headwinds of increased state and federal regulatory requirements.
These rapidly evolving considerations require insurance and reinsurance carriers to be nimbler than ever before. Adaptation by the insurance industry to appropriately manage rising and unexpected losses, while at the same time state and federal governments attempt to constrain the ability to adequately price said risk, presents an inherent conflict. Organizations facing these challenges will increasingly look to operational efficiencies, data-driven decisioning, advanced risk modelling, AI-enabled segmentation and portfolio prioritization to remain competitive.
Over the next several years, the entire system – private and public – may have to come to terms with a fundamental shift in expectations. Higher impact catastrophes, higher frequency, and broader zones of devastation will increase the costs to address these events. Private insurers, state-backed insurers, guaranty funds, and disaster relief funding will all come together to shoulder the larger expected societal effects.
Policies across the board, but particularly in high-risk zones, may see increased premiums which in a fair percentage of cases may permanently alter the associated economics of living and working in these areas. The specter of additional public attention, regulatory oversight and federal involvement simply makes these known realties — and the onus for the U.S. insurance industry to adapt quickly — all the more critical.
