Americans Are Overpaying $150B a Year for Insurance

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 AP 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 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 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've hiked premiums because of rising prices for homes and autos and the expenses of fixing them. "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," said Don Griffin, vice president for policy and research at the American Property Casualty Insurance Association. "Loss ratios in the 1990s were driven to nearly unsustainable levels by Hurricane Andrew in particular."

While President 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. When Trump signed the order in March, he emphasized that he was eliminating heightened standards to protect homes against natural disasters and improve 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.

The Vanderbilt analysis 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 premiums "to pay for corporate perks, corporate jets, stock buybacks, excessive executive compensation, excessive dividends, excessive advertising, and excessive agent commissions."