Insurance is supposed to be a promise. Policyholders pay premiums in exchange for peace of mind that when disaster strikes, the financial burden will not fall entirely on their shoulders. That promise is being questioned today as insurance premiums for auto, homeowners, and commercial coverage continue to rise at a pace that feels disconnected from the everyday experience of most Americans. Affordability of insurance is a topic increasingly being discussed in the media and by political leaders.
A policy paper just released by the Vanderbilt Policy Accelerator, “How to Lower the Insurance ‘Tax’ By $150 Billion,” 1 takes that concern head-on. It makes a bold claim that Americans may be overpaying for insurance by up to $150 billion annually. It is the kind of number that demands attention, scrutiny, and a careful look beneath the surface.
The authors frame the issue not simply as a matter of market forces, but as one of public policy and regulatory responsibility. They argue:
The surge in P&C insurance prices is worsening. The insurance industry is currently engaged in an influence campaign with the goal of getting insurance commissioners, the industry’s regulators in states, to let them increase prices even more. Their primary tactic is using the threat of leaving a state as leverage. So far, that tactic is working. Last year, the largest insurer in the country, in the largest state in the country, was allowed to increase its prices by more than it ever has before.
It has not always been this way. An academic white paper released in tandem with this policy brief shows how the history of insurance law is filled with high-stakes showdowns between government officials and the insurance industry over prices.
Unlike in many markets, in insurance the price is a matter of public policy due to the market’s unique resemblance to a government function. And on numerous occasions, advocates have succeeded in demanding price cuts. For example, in 1988, California passed a 20% price cut in Prop 103, arguably the highest profile direct vote in the country’s history at the time. Prop 103 has saved Californians over $150 billion since its passage.
There is truth in parts of this narrative. Insurance is not a typical free-market product. It is heavily regulated because, without oversight, history has shown that the balance of power can tilt too far in favor of those setting the price rather than those paying it. There is also no question that insurers use the threat of withdrawing from markets as leverage. Anyone practicing in Florida, California, or other catastrophe-exposed states has seen this dynamic play out in real time. I wrote about this in a blog post 17 years ago: State Farm Has Agents Spread Propaganda and Bullies North Carolina.
To be fair and balanced, the Vanderbilt analysis makes bold claims. I am not certain if its logic is completely supported. The central premise relies heavily on declining loss ratios as evidence that insurers are charging too much. These are the percentages of premium dollars paid out in claims. The logic is that if insurers are paying less of each premium dollar back to policyholders, one might reasonably ask where the rest of the premium money is going.
Yet, premium dollars do not just fund today’s claims. They must also account for future catastrophic losses, reinsurance costs, regulatory capital requirements, and the need to grow surplus to sell more insurance. The simple reality is that one bad hurricane season, one major earthquake, one catastrophic wildfire can erase years of underwriting profit and even lead to bankruptcy. Looking at loss ratios in isolation, without fully accounting for volatility and long-term risk, can paint an incomplete picture.
The paper also ventures into more populist territory, pointing to corporate perks such as executive compensation, stock buybacks, and even private jets as evidence of excess. I fully understand that those points may resonate with a frustrated public. Indeed, I wrote about executive compensation in Why Shouldn’t Insurance Executives Disclose Their Pay. The existence of executive perks, however, does not, by itself, establish that an entire industry is systematically overcharging by hundreds of billions of dollars. It makes for compelling rhetoric and will understandably incite readers of my blog, but it is not the foundation of a rigorous pricing analysis.
None of this means the Vanderbilt paper should be dismissed. It raises an important and necessary question. Are premiums rising solely because of increased risk, or are there structural inefficiencies, excessive costs, or regulatory failures contributing to the problem? For my insurance-nerd friends who want to dig deeper into these issues, this study and the debates are important.
I suggest that the answer is not as simple as pointing to one single metric or a headline number. Insurance pricing is complex and sits at the intersection of economics, risk modeling, public policy, and human behavior. It is messy, complicated, and often imperfect. The paper even seems to suggest that selling costs and advertising are not needed. While there may be some agreement about the stupid advertising, which primarily sells on price and even humor, suggesting zero costs for selling the product undermines the important role of agents and customer education needed to sell the insurance product properly.
From a policyholder’s perspective, the current affordability and claims payment issues result in frustration, which is real and feels justified. People are paying more and, in many cases, fighting harder to get paid when losses occur. That experience alone should prompt regulators to ask tough questions and demand transparency. At the same time, those questions must be grounded in a full understanding of how insurance markets function. Otherwise, we risk replacing one problem with another.
Insurance works best when there is a balance between fair pricing and market stability, consumer protection and insurer solvency, and regulation and economic reality. The current moment and this study suggest that balance may be off. The challenge is correcting it without tipping the scales too far in the other direction. For me, laws and regulations requiring transparency in the insurance industry are important and need strengthening. This Vanderbilt paper supports my proposition.
I suggest others interested in the topic of insurance company transparency read Secret Report Proves Florida Insurance Executives Wrongful Self-Dealing, Major Florida Property Insurers Paid Out Excessive Executive Compensation Packages, Dividends For Years, and Florida’s Insurance Scandal: The “Incomplete” Report That Almost Stayed Buried.
Thought For The Day
“The essence of justice is mercy, and the essence of mercy is understanding.”
— Thomas Aquinas
1 “How to Lower the Insurance “Tax” by $150 Billion.” Vanderbilt Policy Accelerator – Vanderbilt University (Apr. 2026).