On Aug. 23, 1992, Hurricane Andrew made landfall in Homestead, Florida. This Category 5 hurricane devastated south Florida and Louisiana with peak winds of 175 mph. Twenty-six people lost their lives, with a total of 69 casualties in all areas affected. In Dade County alone, Andrew destroyed 25,000 homes and left 160,000 people homeless. When Andrew finally faded out, the damage totaled $27.3 billion. This loss led to the bankruptcy of some insurance companies.
As a result of the devastation, building codes changed in Florida. Other jurisdictions subject to hurricanes reevaluated building codes and made changes. Construction costs increased because of the codes, as well as the vast number of materials and resources needed for reconstruction. Litigation involving first-party insurance claims increased significantly. Finally, insurance companies reexamined their underwriting practices not only in hurricane-prone areas, but also in other areas subject to natural disasters.
Disasters Reshape the Landscape
In the years since Hurricane Andrew, it has seemed like, somewhere in the U.S., a disaster was always happening. Hurricanes Katrina and Harvey (among many others), wildfires, tornado outbreaks, freezes, and large-scale hail events destroyed everything in their paths.
In addition to the misery the affected areas experienced, each round of disasters brought more building code changes, litigation, changes to construction practices, increased material expenses, and further insurance industry changes.
The insurance industry created new deductibles, including percentage deductibles or fixed deductibles of $2,000 or more. Premiums increased, driven by higher building and material costs, litigation costs, and inflation. Insurance regulation and oversight became more aggressive. As insurance companies examined loss frequency, they made decisions to non-renew customers, and, in some markets, to stop writing policies altogether. To fill these insurance gaps and ensure business could continue in those jurisdictions, the states created insurance pools to write those lost policies with large premiums to allow coverage to continue.
These events and many others created our current claims environment. On the catastrophe side, since the end of 2024, no hurricanes made landfall in the U.S. Further, non-weather-related property claims are down as well.
We have felt this lack of catastrophe work in our property operations, however, we also noted a decrease in our day-to-day property damage claims as well. Seeing this trend, we reached out to clients for further information. Our clients confirmed that they, too, experienced a decrease in claim volume, both in catastrophe and non-catastrophe claims.
Property: Lower Frequency, Higher Costs
A reduction in property claims must be good news for insurers, right? The statistics do not bear this out. According to LexisNexis Risk Solutions, “In 2024, severity was the highest it’s been across all perils over the last seven years.” Furthermore, LexisNexis states, “The rise in severity offset the decrease in frequency so that the loss cost remained high at 14% above the seven-year [all-peril average].” Studies show this is driven by inflation affecting material costs and labor costs, increasing litigation costs, and immigration-enforcement trends depleting the pool of available construction workers.
Of course, these economic factors require a response from insurers. They must balance the realities of remaining solvent to fulfill the financial promises made to their customers—paying the expenses necessary to service their insureds and paying the claims submitted by their policyholders— against remaining solvent and/or profitable for their stockholders or members. The insurers have some tools they can use to make this happen. These may include more stringent underwriting standards, reviewing loss frequency and severity, and increasing policy deductibles or imposing selfinsured retention (SIR) limits on policies.
Insurer Response
Statistics seem to show that the insurers are using the tools at their disposal. The National Association of Insurance Commissioners (NAIC), in its 2025 first-half results analysis, reported the property and casualty (P&C) industry “recorded its best mid-year underwriting gain in 20 years.” In the same report, the NAIC noted premium increases were slowing down, with only a small increase of 1.9% for Q2 2025. The NAIC summarized its finding, stating, “The P&C insurance industry continues to demonstrate adaptability and strength despite pressures and market trends. The primary concerns are social inflation, causing more frequent and costly litigation of claims, driving higher loss costs in liability lines, and an increased frequency of catastrophic weatherrelated events, which have caused financial losses in nearly all regions of the U.S., resulting in elevated rates in property lines. Despite these headwinds, P&C insurers continue to evolve, finding new growth opportunities, and the market remains stable.”
While results are good, the insurers’ actions to achieve these results and stability may unwittingly drive the increased severity statistics. Since most policy changes or premium increases require state insurance department approval, the changes are public record. They directly impact consumers, and the press inevitably reports the changes. People talk, and when they experience a non-renewal or a premium increase, they tell a friend, or they take to social media to let others know about their experience.
This free flow of information prompts others to review their personal insurance budgets or their business budgets. As a result, they make significant financial decisions, which may include changing insurers, or they decide to handle smaller insurance claims without their carrier’s involvement. When this happens, the insureds will submit only the most severe losses, while others are never seen. This may help explain the decreasing number of property claims even as the dollar amount per property claim increases.
We have seen these trends in our property practice: There are fewer claims, but they have large dollar values and are more complicated, often involving attorneys, public adjusters, and the use of multiple experts. If litigation occurs, another cost layer is added to the overall claim. As the claim stays open longer, it incurs additional expenses for the insurer, and when compounded with the economic costs of repairs, the insurers experience an overall increase in their indemnity exposure.
Casualty Claims
As for casualty claims, they are driven by people’s actions or lack of action. The weather plays a small part in certain types of claims, while natural catastrophes do not play a significant role. Casualty claims often include damage to real property, injury claims, negligent security claims, dram shop claims, and construction-defect claims, just to name a few. Essentially, any interaction among people has the potential to generate a claim.
While insureds may feel comfortable repairing their own homes or paying for those repairs out of pocket, most insureds will feel intimidated when a casualty claim is presented. Since these policies often have no deductible, the insured may not feel there is any negative effect to be experienced in submitting a claim. If there is a deductible or even a significant SIR, the insured will still submit the claim because the insured sees the claim as a potential financial threat. Thus, the peace of mind the insured received from knowing that a large organization with expertise in assisting the insured in managing a potential significant financial threat outweighs the possible insurance consequences. As a result, we have seen a continued steady flow of casualty claims. While claims are steady, there are dark clouds on the horizon.
A Road Divided
Early in 2026, the U.S. P&C market is moving in two different directions: Property rates are flattening or decreasing due to abundant reinsurance capital and a quiet 2025 hurricane season, while casualty lines remain stressed because of litigation trends and adverse loss development. This pattern is reported across insurer and broker outlooks, which describe property conditions as soft, or correcting, and casualty conditions as pressured, especially in commercial auto, umbrella, and excess liability.
The severity of Nuclear Verdicts has doubled since 2020, according to industry data. The median Nuclear Verdict rose to $44 million in 2023 from $21 million in 2020, according to Marathon Strategies, while the Swiss Re Institute reports that U.S. liability claims climbed 57% over the past decade. These concerns were also noted by the NAIC.
In the casualty claim practice, social inflation is the biggest driver of claim severity. A Travelers Insurance article, titled, “4 Social Inflation Drivers Contributing to Rising Claims Costs,” defined social inflation as having four components:
1. Desensitization to large verdicts due to highly publicized Nuclear Verdicts.
2. Negative public sentiment and a perceived lack of corporate responsibility.
3. Erosion of tort reforms.
4. Attorney tactics and litigation funding.
The year 2026 is still young. We cannot predict what the hurricane season will bring for property or what new developments may affect the casualty side of the insurance business. Based on the trends reported, claim severity will be a key issue in the coming year. For the property side, underwriting discipline, repair costs, labor costs, a shrinking skilled labor pool, and inflationary pressures will continue to drive claim severity. An active CAT season could compound those pressures and may challenge our industry the way Andrew did in 1992.
For casualty, social inflation remains the key to claim severity. As an industry, we will need to find ways to work with or neutralize some of the components of social inflation. Proper underwriting and helping educate the public will be key. Finally, we must remain focused on protecting the insured.
About the Author:
Paul Erwin is casualty claims manager at Engle Martin. perwin@englemartin.com