Best practices for insurance-pro success in 2025

I see 2025 through a positive lens, but as always, I remain cautiously optimistic, fully aware that we will continue to navigate more damaging and more costly natural catastrophes, increasing commercial auto claims, social inflation and legal system abuse, among other things.

Positive momentum

Let’s start with those positive headwinds.

Many insurers have finally bitten the bullet and taken the rate increases they needed to better align rates with risk. At the same time, equities have had a good run, keeping our investments in check. We have also seen a renewed focus on underwriting profitability. When you combine underwriting profitability with a positive return on investments, you get an increase in surplus, which insurers are starting to see once again.

Economic conditions have supported good health for insurers as well. While new home growth has slipped, it is not drastically low. Families are forming, which puts more pressure on the home-buying segment. And unemployment is not terrible. Overall, consumer confidence is acceptable at this point in time.

Positive moves by the industry have also helped to fuel this turnaround. For example, the industry has made tremendous progress to address adequate insurance-to-value (ITV) among its policyholders, which was plaguing the industry. In fact, at Pennsylvania Lumbermens Mutual Insurance Company (PLM), we are seeing double digit growth in terms of ITV.

With accurate insurance-to-value, solid underwriting and better rates, the industry has taken action to set itself up for success. There is still more to do on the ITV front, but our efforts so far have given the industry a lift. Within our own walls, we have done an excellent job of updating our building and stock values, but we recognize more can be done in terms of adjusting equipment limits of our insureds to better align with today’s values.

Challenges to navigate

While actions taken by the industry and economic factors have strengthened our industry’s health and outlook, challenges remain such as...

• Natural catastrophes: In terms of natural catastrophes, particularly hurricanes, 2024 brought us more of the same — only worse. We saw wildfires, severe convective storms and blizzards cause damage across the country. And, of course, the hurricanes were big news as well. With Hurricanes Helene and Milton occurring back-to-back, the industry has been struggling to get its arms around both. We were still cleaning up in North Carolina from the tragic damage of Helene when adjusters were called to Florida to assess Milton’s damage. Most of the destruction was caused by flooding, and most business policies do not cover flood. We are seeing more and more of these types of events. Whether you believe in climate change, we should all be in agreement that insurers could do a better job of educating consumers and insureds that flood is not a covered peril under a typical business or homeowners' policy. In the meantime, the losses from these storms will likely lead to higher rates, further restrictions on terms and conditions, and increased caution from reinsurers in certain regions.
• Commercial auto: The hard market for commercial auto has been consistent. At PLM, we have seen claim costs in this segment grow exponentially. Whether it’s due to new technology in vehicles, inflation or supply chain trends, an increase in distracted driving, difficulty finding quality drivers, or nuclear verdicts, the sector is faltering. The commercial auto segment endured a painful loss ratio of 109 in 2023, after reporting a statutory combined ratio above 100 for 12 of the last 13 years, according to Fitch Ratings. This continues to put profitability pressures on insurers.
• PFAs: Polyfluoroalkyl substances (PFAs), known as forever chemicals, are grabbing insurers’ attention as well. These synthetic chemicals are in many adhesives, furniture, plastics and other items across the wood industry and have been found connected to health problems. As a result, many insurers have begun to quietly add endorsements excluding these items from coverage. This is an issue we need to keep our eyes on as an industry as it could blow up to be the next asbestos.
• Legal system abuse: In recent years, we have started to see a trend of questionable funding from third parties coming into our legal system and impacting outcomes. I find this highly objectionable. Third parties, many of which are not US entities, are funding US trials. We object to foreign entities influencing our political elections, but isn’t it a similar abuse when we see foreign entities influencing American judicial systems and outcomes? The new ways we are funding the legal system in our country are turning US court rooms into casinos. Injured parties should be the primary concern in the courtroom, not the concerns of those paying into the system.
• Social inflation: In addition to ill-found funding of the legal system, we also continue to see an increase in nuclear verdicts — those totaling $10 million or more. Verdicts of this type reached a record high of $14.5 billion in 2023 and we do not see an end in sight at this juncture.

A way forward

To continue to succeed in business and provide the best possible coverage and service to our clients, we need to band together as an industry to start to resolve some of these issues.

At PLM, we expect rate increases will not be as aggressive as they have been. We’ll continue to fine tune our underwriting, as we continue to carefully assess risks to find the best business where we can provide solid protection and superior customer service.

The slideshow above illustrates best practices for success in the year ahead.

In summary, we are in a better place than we were as an industry at this time last year. Both self-discipline and economic factors brought us here. Let’s continue to dig in our heels and stay disciplined so we can see 2025 as a profitable year, buoyed by superior customer service, strict underwriting, employee advancement opportunities, thoughtful risk management strategies and more.

John Smith (jsmith@plmins.com) is president and chief executive officer at Pennsylvania Lumbermens Mutual Insurance Company (PLM). With more than 40 years in the insurance industry, he has been a part of PLM since 1998.

This article is published with permission from the author and may not be reproduced. These opinions are the author's own.

See also:

• The three-headed monster threatening insurance
• The costliest hurricanes to hit the U.S.
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