U.S. P&C Insurance Faces Moderate Growth Amid Risks; NJ Workers’ Comp Costs Rise
The U.S. property & casualty (P&C) insurance market is projected to experience modest growth in 2025 and 2026, with premium growth slowing to 5% and 4%, respectively, reflecting a return to more normalized industry expansion rates.
Competitive pressures are intensifying, particularly in the personal auto insurance segment, where advertising expenditures have doubled as companies vie for market share amid profitability improvements. Despite strong performance in 2024, return on equity is expected to slightly decline from 11% to 10% in both 2025 and 2026, due to easing premium growth and the fading of underwriting tailwinds such as low claims severity growth and inflation containment. Investment income will rise, supported by an increase in portfolio yields projected to reach 4.0% in 2025 and 4.2% in 2026; however, yield improvements are decelerating due to a narrowing gap between new money and portfolio yields.
Industry risks include the imposition of 25% tariffs on imported vehicles and parts, which may disrupt pricing and loss costs in personal lines. Catastrophic losses from events like California wildfires have already impacted first-quarter 2025 results, diminishing nearly half of the annual catastrophe budget and raising concerns over severe storm seasons ahead. Reserve adequacy remains a notable challenge, with U.S. insurers having added $16 billion to prior liability loss reserves in 2024 alone, continuing a decade-long trend of underestimation in commercial liability claims.
The combined ratio is expected to deteriorate slightly, reaching 98.5% in 2025 and 99% in 2026, partly due to social inflation pressures that sustain elevated loss ratios in general and auto liability lines. Persistent inflation combined with tariff-related cost shocks poses an ongoing profitability challenge for insurers, particularly affecting homeowners and personal auto underwriting.
In New Jersey, workers' compensation insurance is facing rising medical costs influenced by legislative changes and advanced treatment technologies. Notably, recent legislation increased attorney fee caps and fees for evaluating physicians, raising insurers' expense burdens.
The rise in mental health claims adds complexity to cost management. New Jersey’s workers’ compensation costs exceed national averages, prompting calls for targeted cost-containment strategies and ongoing provider network optimization. Horizon Casualty Services (HCS) leverages a comprehensive provider network and data-driven approaches to balance quality care with cost control in the state's workers’ compensation system, emphasizing evidence-based practices and dispute management.
Collaborative efforts among insurers, healthcare providers, and policymakers are crucial for managing medical inflation trends and sustaining the workers’ compensation system, particularly in states with high claim costs like New Jersey.