The P&C insurance industry entered 2025 with stronger profitability, thanks to improved underwriting practices and increased adoption of risk assessment technologies.
After several years of hard market conditions, commercial lines are beginning to stabilize, while personal lines remain challenged by rate hikes and catastrophe exposure.
WaterStreet Company is here to help inform the industry of emerging trends. We are a provider of P&C Policy Administration Software, supporting insurers through policy and claims administration, document management, third-party integrations, and more.
The State of the P&C Insurance Industry
In the first half of 2025, the U.S. P&C insurance industry saw significant improvements in underwriting profitability.
After record-setting underwriting losses in 2023, many insurers have returned to near break-even or profitable margins. S&P Global projects industry combined ratios to hover between 98%–100% for 2024 and 2025, indicating the market is stabilizing after several turbulent years. This July, Travelers Insurance reported an underwriting gain of $1.6 billion through improved pricing discipline and lower catastrophe losses compared to prior years.
Commercial lines, which had become the more profitable segment during 2023, are seeing modest rate decreases as competition returns. In contrast, personal lines remain strained by rising claims costs and climate-related exposure.
Catastrophes continue to weigh heavily on the industry. The first half of 2025 produced an estimated $126 billion in insured catastrophe losses, which is more than three times the 20-year average. The Eaton and Palisades wildfires in California became noteworthy among the most costly wildfires in U.S. history.
Homeowners insurance continues to be a pain point for policyholders. Premiums have risen by over 20% since 2022, and high-risk regions are seeing even sharper increases. In some parts of California, average home insurance premiums have jumped from $7,000 to over $12,000 annually, forcing some homeowners into mortgage delinquency due to unaffordable insurance costs.
Inflationary pressures on reconstruction and auto repair continue into 2025. While core inflation fell in late 2024, labor and materials costs in the insurance sector remain elevated. Personal auto insurance rates are rising across the board due to higher loss frequencies and expensive parts.
Usage-based insurance (UBI) continues to grow in popularity, especially as consumers seek ways to lower costs. The expansion of embedded insurance offerings sold through mortgage lenders, auto retailers, and digital platforms has helped insurers improve distribution efficiency and reach.
Bottom Line:
- Underwriting profitability has returned for many carriers, with improved loss ratios across commercial and personal lines.
- Catastrophe-related claims remain a major challenge, particularly in wildfire and storm-prone states.
- Inflation and climate risk continue to drive premium increases, especially for homeowners insurance.
- Embedded insurance and usage-based models are expanding rapidly as part of a modern distribution strategy.
2025 P&C Industry Trends
Marketing Strategies
Insurers are increasingly turning to Direct-to-Consumer (DTC) marketing to manage customer acquisition costs in a volatile environment. DTC models allow carriers to scale advertising spend based on performance and market conditions, enabling greater agility and cost control.
Embedded insurance is growing as a dominant distribution strategy. Whether buying a home, car, or other property, customers are being offered insurance products directly through financing and purchasing platforms. These channels create seamless onboarding opportunities for insurers and greater convenience for customers.
Real Estate
As of March 2025, the 30-year fixed mortgage rate hovered near 6.8%, providing slight relief from the 7% peaks of 2024. However, home affordability remains a challenge, especially as insurance costs continue to rise.
Following the July 2024 commission reform ruling, home buyers are now responsible for their own agent fees, increasing upfront costs. This structural shift may reduce the number of new homeowners in 2025, which will in turn impact growth in homeowners insurance markets.
Loss Triangle Analysis
Insurers are revisiting critical tools for understanding performance, including loss triangle analysis. When paired with unified data management, these tools unlock valuable insights into historical performance and claims development trends.
Data quality remains a competitive differentiator. Centralized platforms that enable real-time analysis of development factors can help insurers improve reserving accuracy and respond faster to market changes.
Underwriting Practices
Technology is rapidly changing how insurers assess risk. AI-driven risk scoring, climate intelligence, and geolocation-based analysis are helping insurers move beyond ZIP code–based pricing toward more accurate property-level assessment. Here at WaterStreet Company, we’ve observed greater adoption of AI in nearly every phase of operations heading into 2025.
Underwriters now have access to tools that analyze the age and condition of a home’s roof, proximity to wildfire zones, and likelihood of flood risk. Metrics such as underwriting strike rate are being tracked more closely to improve lead quality and underwriting efficiency.
Industry Niche Trends
Managing General Agents (MGAs) are continuing to play a larger role, especially in serving underserved markets and facilitating embedded insurance. MGAs are seeking software that can support complex, multi-carrier workflows and flexible business rules.
Excess & Surplus (E&S) lines continue to grow, now representing over 10% of total P&C premiums. This segment offers insurers a way to cover high-risk properties and offer customized products in areas where admitted markets have pulled back.
Small and mid-sized insurers continue to face challenges accessing capital and investing in technology. Those that can partner effectively with technology providers are finding ways to remain competitive despite the market’s complexity.
WaterStreet Company in 2025
WaterStreet insurance solutions are flexible and backed by decades of experience in P&C insurance.
We understand the importance for carriers and MGAs to adapt to market changes. Ask us about our additional services for accounting, policy, distribution and customer service support.
Reach out to WaterStreet Company today to request a consultation and demo.
