U.S. Homeowners Insurance Sees Fewer Claims but Rising Costs in Summer 2025

Homeowners insurance claims in the U.S. saw a notable decrease during the summer months of 2025, with Verisk reporting just over 1 million claims from July through September—the slowest summer period for claims in five years. This decline is largely attributed to a significant reduction in hurricane and tornado-related claims, with hurricane claims dropping by 95% compared to the previous year. Despite this decrease in claim frequency, the average severity—or cost—of claims is expected to rise substantially. Initially averaging $16,755 in the third quarter, Verisk projects that after maturation periods and processing of high-value claims, severity could escalate to between $17,258 and $18,431, marking one of the highest-cost quarters recently observed. The rise in claims severity is strongly linked to increasing reconstruction costs, particularly for labor and materials. Residential reconstruction costs surged by 3.52% since October 2024, with labor costs rising at an even faster rate of 4.49%. Material costs rose 2.19%, although lumber prices declined by 1.52%, influenced by tariff fluctuations. Specific events such as the Palisades Fire in the Los Angeles region have driven localized reconstruction cost increases, with increases exceeding the national average by over 7%. Wind and hail damages represented the majority of claims, accounting for 51% of the total, with a notable spike in hailstorm-related claims in Wyoming following a significant August event. Water losses comprised 29.9% of claims, followed by hail at 22.1% and wind damages at 16.2%. Concurrently, new residential construction permits fell by over 8% year-over-year, reflecting subdued homebuilding activity influenced by persistent high mortgage rates and low affordability, which also suppress demand in the home purchase market in 2026. The sustained rise in reconstruction expenses amid declining claim frequency presents a paradox for insurers, highlighting risk management challenges and potential pressure on homeowners insurance premiums. The Federal Reserve has acknowledged that higher goods prices may be a tradeoff related to broader economic and security considerations. In this context, mortgage originators and related financial sectors are adjusting operations, with some offering incentives to stimulate activity despite market headwinds. Overall, the homeowners insurance market is experiencing a complex environment where fewer claims are counterbalanced by escalating costs per claim, influenced by both macroeconomic factors like inflation in labor and materials and specific regional events. This dynamic is likely to affect underwriting strategies, claims processing workflows, and pricing models in the near term.