Looking back, 2025 will be remembered as a year of recovery for the insurance industry. After several years marked by inflation, cost volatility and deteriorating underwriting results, some stability is in sight. Auto markets softened meaningfully, homeowner insurance cautiously began to reopen, and capital became incrementally more accessible. Average loss costs continue to increase because the average spend per claim is increasing. This is due to several factors, including higher settlements with plaintiff lawyers and higher deductibles, which result in fewer claim submissions that recover money just above deductible levels.
This rebound mattered, not because it solved the industry's challenges, but because it gave carriers the room to think beyond survival.
Still, stability proved fragile. Repair and rebuilding costs have increased significantly since the pandemic, driven by materials cost inflation, labor shortages, and the growing complexity of vehicles and homes. Inflationary pressures moved in conflicting directions throughout the year, resulting in uneven outcomes across the market. While margins improved,
After wildfire flames were extinguished, insured catastrophe activity dropped, yet weather events continue to dominate headlines. Each year a small number of severe events, common each year but rare in each location, account for a disproportionate share of insured losses. Black swan events, it seems, are no longer arriving alone.
What 2025 delivered was not certainty, but breathing room. It is time to compete for profitable customers.
AI moved from debate to deployment
One of the most notable shifts in 2025 was the evolution of artificial intelligence (AI) from a philosophical debate into a practical tool. The press often stoked panic around unlikely mistakes, overshadowing the technology's potential benefits. Early AI initiatives were deemed failures and critics warned the technology would entrench bias and eliminate jobs.
The reality has been far more nuanced—and far more instructive.
AI is not a single project with a pass-or-fail outcome; it is a learning system that evolves over time. In 2025, insurers began to learn how to ask better questions of large language models. They learned to use the right "off-the-shelf tool" rather than train on their own data, refined their prompts, and applied the insights generated where they mattered most. The most immediate gains appeared in accuracy and consistency. Today,
AI-driven tools help reduce or eliminate the human subjectivity that creates inconsistency in underwriting and claims. By enabling access to broader, more complete data, AI supports fairer, more consistent decision-making. Fewer operational mistakes are being made, and outcomes are less dependent on individual experience or training, as the collective body of human knowledge can be applied to each unique set of facts.
In auto insurance, advanced driver-assistance systems and automated safety features continued to prevent accidents. Studies show that vehicles equipped with crash-avoidance technologies can
In homeowners insurance, similar opportunities are emerging. AI can help predict and prevent losses by identifying fire risks, water failures, or maintenance issues before they escalate into claims. Forward-looking insurers are learning how to turn technology into a differentiated product offering — one focused on prevention, not just indemnification. By enabling proactive risk mitigation rather than limited financial recovery after the fact, AI unlocks long-term value for both insurers and policyholders.
Consistency became a competitive advantage
As markets reopened, inconsistencies in underwriting and renewal practices became more visible to consumers. Subjective standards like "acceptable maintenance" often produced uneven outcomes, eroding trust and fueling frustration. While AI may interpret visual imagery more consistently than a human looking at a picture, consumers are less forgiving when a computer makes a mistake. At the same time, average homeowners insurance premiums increased
Automated systems, when thoughtfully designed and responsibly governed, offer something increasingly valuable: consistency and fairness. Unlike human judgment, a computer does not bend rules based on emotion or persuasion. AI applies standards uniformly, reduces variability in decision-making, and provides clearer rationales for outcomes. For many tasks, it performs better than humans, freeing humans of mundane and repetitive workflows. As regulators, customers, and carriers demand greater transparency, consistency is no longer just operational; it has become strategic.
Regulatory flexibility remains essential
Another theme that gained momentum in 2025 was regulatory engagement around affordability and availability, particularly in homeowners insurance. They are responding to the nearly tenfold increase in articles on home insurance costs published online, on social media, as well as in traditional newspapers, radio and television. As costs rise, regulators are responding with increased interest in market stability.
The challenge ahead is balance. Well-regulated competition remains one of the most effective mechanisms for reducing excess margins and improving consumer outcomes. There is nothing more effective than competition for lowering costs and rewarding good driving or home maintenance behavior. The industry has demonstrated that rates can move quickly in one direction during extraordinary circumstances. The next test is whether frameworks can flex just as effectively when inflation or cost pressures exceed long-term thresholds. Inflation and climate change will drive costs up in the short term. If it takes years to adjust, will the regulators allow years of extra profit in exchange for gradual rate increases?
As 2026 approaches, we need regulatory approaches that reward carriers who stabilize markets. We will not succeed by forcing carriers to abandon good but underpriced risks, or by asking consumers to absorb unnecessary volatility. The middle path will reward the long-term regulators and carriers.
The talent reload began to take shape
Concerns about AI-driven job displacement persist. However, these same technologies are compressing learning curves, providing real-time guidance, and helping new employees become effective far faster than in the past. This is not about replacing people, but about enabling them and making them more valuable. The more productivity, the more revenue per employee, the more money and profit there will be to pay them.
As routine tasks become automated, employees will focus more on judgment, problem-solving, and delighting their customers. Over time, this shift has the potential to make insurance careers more attractive. We can finally please policyholders with what they get in return for their premiums. The long-awaited insurance talent reload has begun.
2026 will be about redefining value
If 2025 was about regaining balance, 2026 will be about redefining value.
Cost uncertainty is not going away. Litigation dynamics will remain complex. Weather will continue to surprise us. However, insurers now have better data, tools, and insights than ever before.
The real opportunity ahead is to make insurance more valuable. Most homeowners will go decades without filing a claim. AI enables insurers to support them in the years between losses through prevention, insight, and services that actively reduce risk.
The shift from paying for risk to helping
customers avoid it will define the next chapter of the industry. The insurers that succeed in 2026 will not be those chasing technology headlines, but rather the ones using AI, data, and talent thoughtfully to deliver fairness, safety, and genuine value in an increasingly unpredictable world.
