Vanderbilt Paper Swings and Misses On Insurance Profitability

May 13, 2026 - Despite its sensationalistic headline, a recent paper by Vanderbilt University's Policy Accelerator is not worthy of serious attention on two fundamental grounds.

First, it fails to base its work on well-established industry metrics for all industries. If it did so, it would have concluded - based on the latest data from the National Association of Insurance Commissioners - that the property casualty insurance return on net worth was 6% over most of the last decade, far less than the 14.9% average for most Fortune 500 companies. This is hardly a basis for the article's price gouging claims.

Second, the article ignores the core reality of insurance: storing surplus from a few good years is necessary to assure adequate capital to meet the losses of the increasing numbers of bad years, where the losses exceed the premiums. Higher profits in 2024 and 2025 were the result of prices catching up to inflation, along with a lighter than normal hurricane season in 2025, and the industry has used those less challenging years to prepare for more challenging years ahead. At the same time, insurers have put money back in the pockets of consumers in states that have tackled lawsuit reform.

The background and context are worth understanding.

Current loss ratios reflect the impact of enormous financial losses over the last several years, along with the steps insurers have taken to maintain and restore financial strength so funds are available to pay future claims. Part of the value that insurance companies offer to policyholders is stability, and solvency is a key part of that equation.

Loss ratios in the 1990's were driven to nearly unsustainable levels by Hurricane Andrew. The P&C industry learned from that experience and has since focused on rebuilding and maintaining surplus in stronger years to prepare for inevitable periods of elevated losses. This dynamic is similar to how farmers store excess crops or communities conserve water in wetter seasons to ensure adequate supplies during droughts-strong years help sustain resources when conditions worsen.

This objective has become more difficult in recent years as insurance costs have risen, due to several factors. Record inflation has driven construction and building replacement costs much higher than the rate of inflation. We have also seen increasingly frequent and severe natural disasters, along with increasing populations of people living and building in high-risk areas. And finally, the escalating problem of lawsuit abuse is driving up the cost of goods and services across the economy, which then impacts insurance costs.

Homeowners insurance profitability (return on net worth) over the last 41 years has averaged just 2 percent.

The rising cost of living and homeownership, including insurance, is an urgent and pressing challenge for hardworking American families. The property casualty industry is working to help improve the affordability and availability of insurance coverage, particularly through strengthening homes and communities against severe weather, and also through reforms to stop lawsuit abuse.

Florida's lawsuit reforms in 2022 and 2023 have produced lower insurance rates, and other states - Georgia, Louisiana and New York - are following Florida's example, with encouraging early results.

State insurance regulators play an important role in making certain rates and profits are not excessive and that they meet minimum capital requirements to ensure insurers can fulfill the promises they make to policyholders. The nation's state-based regulatory system is best suited for the particularities of each state.

We have seen what happens when government limits insurers' ability to appropriately price policies: markets deteriorate and policyholders are left with fewer options for coverage at higher prices. On the contrary, we have seen significant improvements in insurance markets where state leaders have implemented policies to tackle some of the key factors contributing to higher insurance costs, including legal system abuse.

Market Improvements in Florida since passage of SB2A, HB 837 in 2022 and 2023

• Florida's top five auto insurers-representing 78% of the market-reduced their rates by an average of 7.4% in 2025 and are indicating another 8% cut on average in 2026.
• Property litigation filings were down 25% in 2025 and 23% in 2024 (compared to prior year)
• State Farm is cutting auto rates in Florida by 10%. "Combined with last year's premium cut, its policyholders will save $400 a year on average." (source: WSJ)