American households and small businesses may be paying about $150 billion a year more than they should for insurance on homes, cars and storefronts, according to a new policy analysis that is now putting Washington on the spot. The report urges Congress to set federal guardrails that would force insurers to return a larger share of every premium dollar in the form of claims, not profits.
The authors focus on a sharp drop in insurers’ loss ratios, the share of premiums that comes back to customers as payouts. They cite an industry average of roughly 62 cents paid out per premium dollar in 2024, compared with about 80 cents in the 1980s and 1990s, and argue that the widening gap helps explain why premiums have been jumping. If lawmakers take the idea seriously, any new federal standard could ripple across state insurance markets and show up directly in bills for homeowners and drivers in Detroit and across the country.
The analysis was prepared by the Vanderbilt Policy Accelerator and was obtained exclusively by The Associated Press, which reports the $150 billion estimate and notes that the brief includes drafted legislative language that members of Congress could pick up. The AP reports that the authors argue higher loss ratio standards would shift money away from corporate share buybacks, marketing budgets and executive pay and back toward paying claims.
What Is Driving Bills Higher
Economists say there is more going on than just corporate belt tightening. A policy brief from Brookings traces recent premium pressure to a tangle of rising construction and repair costs, rapidly climbing reinsurance prices and mounting disaster risks.
Drawing on research by Benjamin Keys and Philip Mulder, Brookings finds that average inflation adjusted homeowners premiums rose about 28% between 2017 and 2024, to roughly $2,700 a year. Roughly one third of that jump is tied to higher construction costs and about 20% to greater disaster exposure, according to Brookings. The underlying research by Keys and Mulder uses detailed mortgage escrow data and documents a reinsurance “shock” that has amplified premium gains in higher risk markets.
What Vanderbilt Is Proposing
The Vanderbilt brief calls for federal guardrails that would raise the minimum share of premiums insurers must pay out in claims, and it includes sample legislative text that could serve as a starting point for Congress. The authors calculate that returning closer to an 80-cent payout level, in line with historical norms, would have meant roughly $150 billion less in premiums last year, according to the Vanderbilt Policy Accelerator. On its site, Vanderbilt lays out the policy logic and the mechanics of how such a standard could be designed and enforced.
Insurers Push Back
Insurance companies and their trade groups say the analysis leaves out just how rough the last several years have been for the industry. They argue that lower payout ratios reflect the steps they had to take to stay solvent after a run of costly disasters, not a money grab.
In an emailed statement quoted by ClickOnDetroit, Don Griffin of the American Property Casualty Insurance Association pointed to recent losses and said actions to “maintain and restore financial strength” explain today’s lower loss ratios.
Legal And Local Stakes
Insurance regulation in the United States is largely handled at the state level, which is one reason a federal mandate here would be so unusual and so politically fraught. The National Association of Insurance Commissioners describes the U.S. system as state-based and notes that regulators work together to set standards, according to NAIC.
At the same time, high borrowing costs are squeezing household budgets. The national average 30-year mortgage rate remains above 6% this month, making it tougher for homeowners to absorb higher insurance bills, according to Freddie Mac.
What To Watch Next
Lawmakers, state regulators and consumer advocates are now left to decide whether a federal fix is legally and politically realistic or a nonstarter. The Vanderbilt Policy Accelerator write-up spells out how a federal loss ratio standard could be drafted and enforced. Policy research from Brookings has outlined other options too, including a federal reinsurance backstop that could soften reinsurance shocks and help steady prices for homeowners and small businesses.
For Detroit homeowners and business owners, the Vanderbilt paper reads as both a warning and a roadmap. It suggests there may be room to pull premiums back down, but any federal solution would have to clear legal hurdles and stiff industry resistance. Expect the fight to spill into state capitols and onto Capitol Hill as regulators, consumer groups and insurers test both the math and the politics.
