Americans are overcharged $150B per year for insurance, analysis finds

A new analysis by the Vanderbilt Policy Accelerator suggests Americans are overpaying for insurance by a staggering $150 billion annually, highlighting a growing disparity between premiums collected and claims paid out.

According to the report, obtained exclusively by The Associated Press, insurance companies are reimbursing significantly less on claims than in previous decades. For every dollar collected in premiums in 2024, insurers paid out just 62 cents for claims, down substantially from the 80 cents average during the 1980s and 1990s.

“The fact that the loss ratios are so low means that the insurance industry is charging too much,” said Brian Shearer, director of competition and regulatory policy at the Vanderbilt University think tank and a former senior adviser at the Consumer Financial Protection Bureau.

The analysis comes at a particularly sensitive economic moment, as Americans continue to struggle with affordability pressures across multiple sectors. While insurance companies attribute premium increases to rising home and auto values and higher repair costs, the report suggests that consumers are bearing an unnecessary financial burden.

Insurance industry representatives defend the current loss ratios, pointing to recent financial challenges and the need for financial stability. Don Griffin, vice president for policy and research at the American Property Casualty Insurance Association, stated in an email that “current loss ratios reflect the impact of enormous financial losses over the last several years and the steps insurers have taken to maintain and restore financial strength so funds are available to pay future claims.”

Griffin further argued that loss ratios in the 1990s were “driven to nearly unsustainable levels by Hurricane Andrew in particular,” and expressed opposition to federal oversight, maintaining that “the state-based regulatory system is best suited” for insurance industry supervision.

The insurance affordability crisis intersects with broader economic and political concerns. While President Donald Trump won reelection partly on promises to tackle inflation, his administration has simultaneously dismantled regulatory institutions like the CFPB that were designed to identify potential consumer savings.

Housing costs remain particularly burdensome for Americans, with average mortgage rates exceeding 6%. In March, Trump signed an executive order aimed at increasing home construction by eliminating certain building standards meant to protect against natural disasters and improve energy efficiency, arguing these regulations unnecessarily increased construction costs.

“We will slash many of these pointless regulations that do nothing for safety and add lots of costs,” Trump stated at the signing.

Recent research by economists Benjamin Keys and Philip Mulder found that average home insurance premiums rose 28% between 2017 and 2024 when adjusted for inflation, reaching an annual cost of $2,750. Their analysis attributed about one-third of these increases to higher construction costs and another 20% to greater disaster risks. The remaining increases were linked to factors like reinsurance costs, which insurers purchase to protect themselves from catastrophic losses.

The Vanderbilt analysis takes a different approach, focusing on the widening gap between what insurers charge and what they pay out. It estimates that if insurers returned to the historical loss ratio of 80 cents paid for each dollar collected, households and businesses could save approximately $150 billion from the more than $1 trillion paid in premiums in 2024.

To address these concerns, the analysis proposes federal legislation that would establish minimum loss ratio requirements for insurers. Currently, insurance regulation primarily falls under state jurisdiction, but a federal mandate would present a more formidable challenge for companies to contest.

The report further alleges that insurers are using premium revenue “to pay for corporate perks, corporate jets, stock-buy backs, excessive executive compensation, excessive dividends, excessive advertising, and excessive agent commissions.”

Shearer argues that the industry’s competition model is fundamentally flawed, with companies “competing against each other, not based on price but just based on brand awareness,” resulting in excessive marketing expenditures that ultimately burden consumers.