Personal Insurance Trends: What to Expect in 2025

JANUARY 7, 2025

This article was updated on April 9, 2025.

The personal insurance market was fraught with challenges in 2024. Insureds faced difficulty in obtaining coverage, and premiums increased on property, auto, and excess liability policies. Severe weather events, inflation, a complex regulatory environment, fluctuations in reinsurance rates and terms contributed to the hard market, negatively impacting carrier profitability.^1,2 Unfortunately, 2025 may be bringing us more of the same.

Homeowners

At the beginning of the year, California faced a devastating wildfire event. JPMorgan reports the Los Angeles area fires resulted in $50 billion in damages, with only $20 billion covered by insurance.

In the surplus lines market, wildfires are expected to impact reinsurers’ earnings rather than causing significant capital erosion or balance-sheet issues.⁴ Experts predict these wildfires will decelerate the reduction in property insurance premiums.

State regulators have negatively impacted the homeowners insurance market by limiting insurers’ ability to adjust premiums in response to rising property values, construction costs, and increased wildfire risks.⁵ Consequently, many insurers have stopped renewing policies.

Expect to see major insurance companies continuing to withdraw from states with severe weather events. Homeowners in these states might receive insurance offers that require resiliency action plans. Those unable to meet these requirements may have to seek coverage through state-organized insurers.⁶ Nationally, homeowners can anticipate an average premium increase of 21% in 2025.⁷ 

Inflation is significantly contributing to the rise in insurance premiums. Rebuilding a home in 2025 is more costly than it was a few years ago. As inflation increases, so do reconstruction expenses. The rising prices of lumber and other materials necessary for home construction contribute to inevitable premium hikes. Additionally, labor shortages persist in 2025, and home insurance premiums must rise to cover the higher costs of materials and skilled labor needed to rebuild a home after a covered disaster.⁷

Auto

Auto insurance rates are predicted to rise in 2025. Increased repair costs, claim frequency, and severe weather events are impacting rates. However, insurers are investing in new technology, which will bring better underwriting, claims handling and overall efficiency in 2025. AI-powered risk analysis models scan through large amounts of data to research prior claims and review social media to predict future behavior. Using AI technology will increase accuracy and efficiency in underwriting.⁸

Telematics, a technology that tracks driving behaviors, is transforming auto insurance. The technology monitors speed, braking patterns and mileage, allowing insurers to tailor premiums to individual driving habits. Safe drivers benefit from reduced premiums. Data-driven, usage-based insurance models appeal to drivers who are comfortable with technology, and simultaneously reduces loss ratios for insurers.⁹

Uninsured drivers are also impacting auto insurance. Many states require drivers to maintain a minimum amount of car insurance; however, the number of drivers who have no insurance has grown. Uninsured drivers increase the cost of auto insurance for everyone. As the number of uninsured drivers grows, the risk for insurance companies increases, which increases rates for all drivers.

Flood

In 2025, expect to see more emphasis on educating homeowners about the need for flood insurance. The focus will include non-coastal areas, which many homeowners consider safe from flooding. For example, Hurricane Helene caused severe flooding in western North Carolina, devastating communities. Less than 3% of properties in North Carolina have flood insurance.¹⁰

There is a common misconception that regular home insurance covers flooding, which is rarely the case. Homeowners education will therefore be at the forefront in 2025.

FEMA will obtain reinsurance on or about January 1, 2025, to be effective for one or more years. The reinsurance will partially indemnify FEMA in the event of large losses. The amount of reinsurance and the design of the reinsurance program will remain undisclosed until determined otherwise by FEMA.¹¹

Cyber

The cyber insurance market will experience significant growth and standardization in 2025. As hacking events evolve, attackers’ financial incentives grow. Currently, cyber insurance policies vary in limits, features and coverages. This creates confusion for policyholders. In 2025, the industry may remove the variation in cyber risk insurance policies, and customized coverage will only remain for buyers who demand it.¹²