As we approach 2025, businesses will experience a more stable commercial insurance market following several years of sharp premium increases. The U.S. property and casualty sector saw its combined ratio improve to 94.2% in early 2024, signaling better profitability and greater balance. 

With inflation easing and premium growth stabilizing, carriers may offer rate reductions to businesses with a strong risk profile. While dramatic changes aren’t expected across the board, now is a good time to reassess and optimize your risk tolerance as market competition increases. 

Five key trends to watch

As the market stabilizes, several trends will shape the industry and present both challenges and opportunities in the coming year. 
 
1. A reckoning is likely in California for the workers’ compensation marketplace
Workers’ compensation (WC) rates have remained stable or declined, especially in California. Over the past two decades, the average rate per $100 of payroll plummeted from $6.40 in 2003 to just $1.58 in 2024. Initially driven by healthcare reforms and better access to benefits, this trend is becoming unsustainable. Rising healthcare costs, workers living longer, and steady claims frequency signal an inevitable rate increase coming our way in the very near future.   
For example, California’s combined accident year ratios, which reflect insurers’ total experience, have remained alarmingly high — 115% in 2021 and hovering around 109-111% since. This indicates that carriers are consistently losing money on WC claims in the state. Such imbalances mean insurers will need to re-evaluate their pricing, and experts expect WC rates to rise within the next six to 12 months. For businesses, this means preparing for higher insurance costs as carriers correct underpricing and aim for profitability. 

2. Corporate commercial property insurance rates are stabilizing as climate risks continue 
 
Despite the increasing climate-related disasters, corporate property insurance rates are showing signs of stabilization after several years of aggressive hikes. Post-COVID-19, replacement costs surged due to supply chain disruptions and labor shortages, forcing higher building valuations. 

Now, premiums and rates are high, and the market is calming down. U.S. commercial insurance rates grew by 5.9% in Q2 2024, down from 6.3% in Q1, indicating a slowdown. Insurers are more competitive on good risks, indicating smaller rate increases in 2025. 

However, environmental challenges may still affect high-risk areas. While materials and labor costs remain volatile due to ongoing natural disasters, the period of large, abrupt rate jumps appears to be over. By re-evaluating asset values and ensuring up-to-date risk assessments, companies can better navigate this steadying environment, particularly in high-risk regions. 
 
3. Workforce deficit will impact customer service roles 
The insurance industry faces a significant workforce crisis, set to worsen in the coming years. The looming talent gap, with more than 50% of the current insurance workforce expected to retire by 2040, leaves over 400,000 positions unfilled. Every position, from support roles to client management roles, to senior brokers will feel the deficit which could wreak havoc on an inherently customer-centric service business. What keeps brokerage owners like me up at night are two things: the state of employee engagement and the state of the customer engagement we deliver. The soon-to-be fading workforce puts both of these top of mind. Customer service roles, in particular, will feel the impact as experienced staff leave the industry. 

With less than 25% of the workforce under 35, companies will struggle to replace key roles that maintain the expected service levels of industry leaders. As a result, insurance companies will find it difficult to replace experienced account managers and support staff. Some forward-thinking organizations are already engaging with educational institutions to develop the next generation of industry professionals to ensure the continuity of quality service and expertise, but more must be done. Getting creative in how we invest in talent pipelines will be essential to addressing the coming workforce deficit, particularly in customer service roles that are vital to maintaining client relationships. 
 
4. Technology is improving efficiency but won’t replace human expertise 
Advances in AI and automation will continue to streamline operations, but they won’t replace human expertise. AI is increasingly used in claims processing, risk assessment, and underwriting, making routine tasks faster and more cost-effective. Experts believe that by 2032, insurers could generate $4.7 billion annually from AI-related insurance premiums, growing at a compound annual rate of 80%. However, while technology will automate certain products — like renters’ insurance and pet insurance — more complex policies, such as homeowners’ or business insurance, still require the hands-on expertise of a broker and underwriter. Human judgment remains critical, especially in negotiating premiums and explaining complex coverages to clients. As AI becomes more integrated into insurance workflows, expect technology to complement human skills rather than replace them, particularly in areas that require nuanced decision-making and customer relationships. 
 
5. M&A activity is expected to accelerate 
Mergers and acquisitions (M&A) in the insurance industry are set to increase in 2025 as interest rates stabilize and private equity firms continue to target the sector for growth. The market remains highly fragmented, with an estimated 39,000 independent property and casualty agents and brokers in the U.S. in 2024, down from 40,000 in 2022. Many of these firms are seeking exits or succession plans as perpetuation challenges grow. Private equity firms and larger companies are already buying up smaller firms, with one in three agencies expecting ownership changes in the next five years. This increased M&A activity offers opportunities for smaller firms to either position themselves for acquisition or remain independent by focusing on niche markets. Additionally, as more private equity-backed platforms grow, public market activity in the insurance space is likely to rise, further fueling consolidation. 

Take advantage of the evolving market

While the commercial insurance market is stabilizing, several key shifts — including rising workers’ compensation rates, the looming talent deficit and increased M&A activity — will shape the industry in the coming year. Despite these changes, the overall outlook remains positive, with commercial property rates beginning to steady after years of volatility. Businesses that stay informed and take a proactive approach to risk management will be well-positioned to navigate these changes effectively and capitalize on new opportunities.