2025 Insurance Outlook: Addressing Volatility in Property and Casualty Insurance

In the 2025 Global Insurance Outlook: Evolving Industry Operating Models To Build the Future of Insurance, Deloitte's Karl Hersch, James Colaço, and Michelle Canaan examine the major trends shaping the property and casualty (P&C) insurance sector. The report highlights the growing challenges of inflation, natural catastrophes, evolving geopolitical risks, and the increasing role of technology and artificial intelligence (AI) in reshaping the industry. To navigate these complexities, insurers must modernize operations, innovate product offerings, and adopt forward-looking business models.

P&C Insurance in 2025

According to the article, the P&C sector has seen significant volatility due to rising claims costs driven by inflation and climate-related events. Insurers have responded by increasing premiums and, in some cases, restricting coverage in high-risk areas. These strategies have led to a financial recovery, with US P&C insurers posting a $9.3 billion underwriting gain in the first quarter of 2024, which is a stark contrast to the $8.5 billion loss in the same quarter of 2023.

However, as noted in the article, these short-term strategies raise concerns about the long-term sustainability of profitability in the P&C sector, particularly as inflation continues to drive up the costs of claims. The article underscores that the rising costs of goods and services, coupled with supply chain disruptions, are forcing insurers to adopt more cautious underwriting practices and increase premium pricing across many lines of business.

Impact of Natural Catastrophes

Natural catastrophes have become a growing concern for P&C insurers. The article reports that global insured losses from natural disasters exceeded $100 billion in 2023, with no single event contributing more than $10 billion in damages. This broad spread of smaller yet costly events underscores the increasing geographic spread of high-risk zones due to climate change. According to the article, insurers must reassess their catastrophe modeling and underwriting strategies to reflect this new reality.

These growing climate-related risks are prompting insurers to rethink their approach to risk management and adjust their exposure in regions most vulnerable to natural disasters. While premium increases have provided short-term relief, the article stresses that insurers must develop more sustainable strategies to manage the rising frequency and severity of natural disasters.

Social and Geopolitical Inflation

The article also highlights the ongoing challenge of social inflation, particularly in the US market, where rising litigation costs and larger jury verdicts are driving up the cost of liability claims. This trend is especially prominent in lines such as directors and officers liability and employment practices liability. Social inflation, according to the authors, is now spreading to other regions like Australia, where the legal environment is leading to larger settlements and higher claims costs.

Geopolitical risks are further complicating the P&C insurance landscape. The ongoing Russia-Ukraine conflict and instability in the Middle East have heightened concerns over political and cyber risks. According to the article, insurers are increasingly focused on conducting more meticulous risk assessments in these areas to better understand the potential impact on underwriting and pricing strategies in commercial lines.

The Role of AI and Technology in Insurance

A key theme in the Deloitte article is the increasing role of AI and advanced technology in transforming how insurers operate. According to the article, AI is becoming essential for improving risk evaluation, streamlining processes, and enhancing customer engagement. As consumers become more empowered through access to generative AI tools, insurers are under pressure to innovate and deliver faster, more personalized experiences. The article stresses that technology is no longer a "nice to have" but a necessity in navigating the complex landscape of 2025 and beyond.

The article also highlights the importance of transparency in the use of AI. As insurers increasingly rely on AI-driven insights for decision-making, they must ensure fairness and clarity in their practices to maintain trust with both consumers and regulators. This focus on transparency will help make AI more acceptable and widely adopted across the industry.