Personal Insurance Trends: What to Expect in 2025

JANUARY 7, 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

Fortunately, 2025 brings good news for the personal insurance market. AM Best revised its outlook on U.S. personal lines from negative to stable. Rate and pricing conditions are expected to improve, particularly in the auto insurance space. Regulators are accommodating rate requests, investments yields are rising, and insurers are investing in technology. These factors have contributed to favorable conditions for 2025.³

Homeowners

If inflation remains low and severe weather events are limited, 2025 will bring a balanced home insurance market. Carriers re-entering the homeowners space should result in moderate rate hikes.⁴ To remain competitive, existing markets will need to become more flexible with their pricing and underwriting appetites.

Major home insurance companies will continue exiting U.S. states with severe weather events. Homeowners receiving offers of insurance may find they must complete resiliency action plans prior to policy issuance. Homeowners who cannot meet the requirements may be forced to place coverage through state-organized insurers.⁵

Dwelling coverage will be the focus in the homeowners space for 2025. According to LexisNexis’ 2024 Home Insurance Consumer Insights report, 70% of homeowners rely on their insurance company to ensure they have sufficient coverage.⁶ When inflation increases, so do rebuild costs. Premiums will increase as dwelling values are adjusted to appropriate rebuild values. Along with adjusting dwelling values, expect to see renewals with percentage-based deductibles even in areas that do not experience severe weather events.

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.⁷

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.⁸

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.⁹

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.¹⁰

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.¹¹