The global insurance industry stands at a defining precipice in 2025. Experts call it a permacrisis, an environment representing a fundamental departure from the cyclical volatility that defined the previous decades. Insurers are no longer merely managing the financial ripples of discrete events. They are instead navigating a continuous, interconnected landscape where macroeconomic shifts, geopolitical instability, and a rapidly mutating climate risk profile interact to reshape the mechanics of risk transfer.
The industry has been forced to abandon the pursuit of top-line growth that characterised the low-interest-rate era. In its place, a new orthodoxy of technical discipline and profitable growth has emerged.
The economic backdrop against which this transformation is unfolding is one of fragile stabilisation. The rampant inflation that eroded underwriting margins in the early 2020s has begun to subside in headline terms.
Forecasts indicate that global inflation will decline to 4.2% in 2025 and further to 3.7% in 2026. This disinflationary trend offers a glimmer of relief to an industry that has grappled with the severe escalation of claims costs. However, the deceleration in consumer price indices masks a more complex reality within the insurance value chain.
The cost of materials remains elevated. Labour shortages in the construction and automotive repair sectors continue to exert upward pressure on severity. The price of medical care is rising at a rate that outpaces general inflation. These factors ensure that the cost of settling a claim in 2025 remains significantly higher than it was just a few years prior.
This divergence between headline economics and claims reality has forced property and casualty insurers to maintain a relentless focus on rate adequacy. In the United States, underwriting performance in 2024 was the strongest observed in over a decade.
Yet the combined ratio is projected to deteriorate slightly from 97.2% in 2024 to 98.5% in 2025. Rate increases are chasing a moving target. The compounding effects of social inflation and the increased frequency of secondary weather perils mean that yesterday’s adequate premium is today’s underwriting loss. The industry is effectively running up a down escalator. It must constantly push for a rate just to maintain its standing.
The impact of interest rates adds another layer of nuance to the 2025 outlook. The era of near-zero rates is over. The normalisation of yields has provided a significant tailwind for investment income. Insurers are now able to generate meaningful returns on their float. This has alleviated some of the pressure to generate underwriting profit at all costs. In the life insurance sector, this shift has been particularly transformative.
Higher interest rates have reignited consumer demand for savings and annuity products. Households are eager to lock in attractive yields after years of financial repression. North America witnessed an impressive 14.4% growth in the life segment in 2024, driven largely by this dynamic. This resurgence in life insurance provides a counterweight to the volatility in property and casualty lines. It offers diversified composites a more stable earnings profile.
The disparity between developed and emerging markets remains a structural fissure in the global landscape. Premium income in North America increased by 8.2% in 2024. This growth was driven primarily by hard market pricing rather than an expansion of exposure. In contrast, the Asian property and casualty market grew by a more modest 4.0%.
This lag in Asia is counterintuitive given the region’s rapid economic development and urbanisation. It highlights a persistent under-penetration of insurance products in some of the world’s most dynamic economies. The term growth market is losing its lustre when applied to these regions in the context of insurance.
Mature markets are outperforming in terms of premium volume generation. This is due to the compounding effect of rate hardening on large existing portfolios. Consequently, global insurers are recalibrating their geographic strategies. The focus has shifted from planting flags in every jurisdiction to deepening resilience in core markets where the regulatory and legal frameworks allow for sustainable pricing.
Corporate leadership within the G20 nations views this landscape through a dual lens of immediate anxiety and long-term dread. Immediate concerns in boardroom surveys focus on fears of economic downturns and social instability. Yet the physical reality of climate risk remains the dominant medium-to-long-term threat. Executives are increasingly aware that while extreme weather may fluctuate in annual rankings of perceived risks, its financial impact is cumulative.
It is not a distinct event but a changing baseline. This realisation is driving a fundamental reassessment of capital allocation. Carriers and risk managers acknowledge that physical climate risk is now a permanent variable in the pricing equation. It is no longer an anomaly to be smoothed over but a trend to be priced in.
Normalising loss
The trajectory of natural catastrophe losses has solidified into a long-term upward trend that defies the traditional categorisation of exceptional years. By 2025, the insurance industry will be confronting a reality where annual insured losses routinely exceed the $100 billion threshold. This figure is no longer a marker of a bad year but rather the baseline expectation for a standard year. The drivers of this escalation are multifaceted. They include the intensification of hazards due to climate change, the accumulation of asset values in high-risk zones, and the inflationary pressures that drive up the cost of reconstruction. The result is a risk landscape that is becoming increasingly volatile and difficult to model using historical data alone.
Projections for 2025 indicate that global insured losses from natural catastrophes are on track to reach $145 billion. This follows a relentless pattern observed in previous years, where 2024 recorded $137 billion in insured losses. The growth in losses is following a 5% to 7% annual increase in real terms. This rate outpaces global GDP growth.
It indicates a widening disconnect between economic development and risk mitigation. The first half of 2025 alone witnessed estimated insured losses of $80 billion. This was the second-highest ever for a first-half period. The industry is facing a scenario where the average year is becoming historically expensive.
Verisk data reveals that the global modelled insured average annual property loss has risen to $152 billion. This benchmark suggests the $100 billion loss year is no longer an outlier but an expectation.
A critical shift in the loss landscape is the dominance of secondary perils. These include wildfires, severe convective storms, and floods. These perils are overtaking traditional peak perils like earthquakes and hurricanes as the primary drivers of loss frequency.
While peak perils still drive the extreme tail risk that threatens solvency, secondary perils are driving the earnings volatility that erodes shareholder value. They are the events that eat through deductibles, aggregate to breach retention layers, and force primary insurers to retain more risk on their own balance sheets as reinsurers move their attachment points higher.
The defining event of early 2025 was undoubtedly the Los Angeles wildfires. In January 2025, unseasonal wildfires in Los Angeles accounted for nearly 70% of the first-quarter global insured losses. This event was catastrophic in both scale and implication. The fires destroyed over 16,000 structures, claiming at least 31 lives.
Economic loss estimates reached as high as $250 billion. The insurance industry is expected to pay $40 billion in claims for this single event. This marks it as the largest insured loss from a wildfire in history. The sheer magnitude of this loss challenges the very assumption that wildfire is a secondary peril. It has manifested as a primary peak peril in terms of financial impact.
Reinsurance renaissance
The global reinsurance market in 2025 serves as the critical shock absorber for the primary insurance sector. Following a period of intense hardening in 2023 and 2024, the reinsurance market has entered a phase of robust health. It is characterised by record capital levels and disciplined pricing.
Reinsurers have successfully redefined their value proposition as markets have reached structural maturation. They have moved away from being the bankers of high-frequency working losses to becoming the guardians of balance sheet solvency against extreme tail events.
Global reinsurer capital reached a record $769 billion by the end of 2024. This was an increase of 5.4% from the previous year, fuelled by strong earnings. The sector reported a combined ratio of 86.8% and a return on equity of 17%. These metrics indicate a sector that is pricing risk sustainably. It is generating returns that exceed its cost of capital. This is a crucial requisite for attracting and retaining investor interest. The industry has successfully re-priced risk.
It has moved away from low-lying retention layers and forced primary insurers to retain more high-frequency volatility. This structural shift has insulated reinsurers from the attrition of secondary perils. It allows them to focus on their core mandate of capital protection against extreme tail events.
Despite the influx of capital, the market remains disciplined. Reinsurers are not rushing to soften terms and conditions as they might have in previous cycles. The memory of losses from 2017 to 2022 remains fresh. The uncertainties of climate change and inflation provide a strong rationale for maintaining rate adequacy.
Underwriters are scrutinising cedants’ portfolios with unprecedented rigour. They are demanding granular data on exposure and valuations and are wary of being caught by unmodeled risks or undervalued assets. The 1/1 renewals in 2025 reflected this continued discipline. While there was sufficient capacity to clear the market, it was available at a price that reflected the new risk reality.
The disparity between total economic losses and insured losses remains one of the most significant challenges facing the global economy. This protection gap is a stark indicator of economic vulnerability. In 2024, only 43%, or $137 billion, of the $318 billion in global economic losses were insured. This leaves a staggering 57% of losses uninsured, a burden that falls on governments, businesses, and individuals and often leads to long-term economic scarring and a slower recovery trajectory following a disaster.
In advanced markets, resilience has improved. The insured portion of losses rose to above 38% in 2023. However, in emerging markets, resilience remains extremely low. Regions in Asia and Latin America are almost entirely unprotected from natural catastrophe risk. This creates a cycle of disaster-induced poverty and debt. In these regions, a major natural disaster can wipe out years of development gains in a matter of hours. The lack of insurance liquidity means that reconstruction is delayed, businesses fail, and families are pushed into poverty.
Adaptation drives lasting resilience
AI has a big role to play in this transformation. The technical discipline characterising 2025 is fundamentally powered by the industrialisation of Generative AI and the maturation of the Internet of Things (IoT).
As historical data loses its predictive fidelity in the face of climate flux, the industry is pivoting toward real-time data liquidity. Insurers now use centuries of loss history and continuous data streams (from telematics in logistics to satellite imagery in property lines). This technological leap is the only mechanism capable of reconciling the industry’s need for rate adequacy with the consumer’s need for affordability. By stripping friction from the underwriting value chain, AI is combating the expense ratio pressures that inflation has exacerbated. More importantly, it is operationalising the “predict and prevent” model. For the insurance industry to remain relevant in a permacrisis, it must evolve to become the digital nervous system of global risk management.
As the global insurance industry looks toward 2026 and beyond, the theme is one of adaptation. The industry is successfully transitioning, and the risks of the 21st century are too complex and too volatile. Prevention and mitigation must be at the core of the industry’s value proposition.
The financial fundamentals are strong, with the industry holding a record capital of nearly $770 billion in the reinsurance sector, the primary market returning to underwriting profitability in many lines, and the fiscal shock absorbers to weather the coming storms.
The growth of the ILS market demonstrates financial innovation, with the successful issuance of cyber cat bonds showing that capital markets are willing to support the industry, which is essential for managing future risks.
The global insurance market in 2025 faced unprecedented challenges, driven by risks associated with climate change, economic adjustments, and social forces. Natural disaster losses are escalating, and the coverage gap is substantial, particularly in emerging countries.
The insurance industry is responding through disciplined underwriting, higher premiums, and technological innovation such as artificial intelligence. The industry has the tools it needs to manage risk and prepare for the future through strong capital, successful reinsurance, and financial markets.