Challenges and Proposals for the American Homeowners' Insurance Market
The American homeowners' insurance market is grappling with rising premiums and structural challenges. From 2017 to 2024, inflation-adjusted premiums surged by 28% nationwide. In states like Nebraska, Louisiana, Florida, Oklahoma, and Kansas, premiums have soared above the national average, exceeding $4,400 annually. By December 2025, the average new policy premium reached about $1,950, an 8.5% increase from the previous year. Alongside rising premiums, deductibles also escalated by approximately 22% in 2025, shifting more financial responsibility to policyholders.
Market instability has led insurers to cancel policies and retreat from certain markets, with some facing insolvency. California's FAIR Plan, an insurer of last resort, managed nearly 4,800 claims from the Los Angeles wildfires in early 2025, leading to estimated losses potentially exceeding $250 billion. To maintain solvency, the Plan imposed a $1 billion levy on private insurers. Similar scenarios have unfolded in states like Florida, Louisiana, and Texas, where private insurer withdrawals present ongoing challenges.
To address these issues, economists Benjamin L. Collier and Philip Mulder from the University of Wisconsin-Madison, along with Benjamin J. Keys from the Wharton School, have proposed "US Re"—a federal reinsurance entity intended to cover extreme climate-driven events. Their proposal, featured in the Brookings Institution's Hamilton Project, aims to offer reinsurance for catastrophic risks that the private market struggles to price efficiently.
Reinsurance allows insurers to distribute some of their risk exposure to larger reinsurers, such as Munich Re, Swiss Re, and Berkshire Hathaway. However, the costs of reinsurance for U.S. catastrophes are high and volatile, affecting the affordability and availability of homeowners’ insurance. The proposed federal entity, US Re, would act as a reinsurer of last resort, addressing rare but severe events that exceed private reinsurers' capacity.
US Re's advantage lies in its ability to leverage the federal government's lower borrowing rates, potentially offering lower and more stable reinsurance pricing than private entities. The proposal emphasizes that this entity would not blanketly subsidize risks but would prioritize contract pricing based on expected losses and costs.
The implementation of US Re requires adherence to specific design principles: ensuring risk-based pricing free from political influence, intervening when private market solutions fall short, and maintaining operational independence. The proposal considers lessons from past federal insurance programs, such as the National Flood Insurance Program (NFIP), which has faced challenges due to politically-driven pricing and debt burdens.
For insurance professionals, the proposed federal entity underscores the ongoing structural challenges in the homeowners’ insurance market and raises considerations about the balance between market solutions and potential federal interventions. Addressing the adequacy of market and state-level adaptations versus a federal framework remains crucial for future preparedness in managing catastrophic risk.