P&C Market Enters Correction Phase With Significant Rate Relief and Emerging Challenges

The property and casualty market faces a pivotal transition in 2026, with softening property rates and competitive capacity creating opportunities for commercial insurance buyers even as social inflation and emerging risks continue to pressure underwriting profitability across multiple lines, according to USI Insurance Services’ 2026 market outlook.

The P&C landscape in 2026 presents a study in contrasts, according to the USI report. The property market, buoyed by a quieter-than-expected 2025 hurricane season and the arrival of record amounts of reinsurance capital, is experiencing meaningful rate relief.

While global insured catastrophe losses reached an estimated $107 billion in 2025—significantly lower than the projected $200 billion—competitive momentum continues to build, with shared and layered placements seeing rate decreases of 10 to 30% or more compared to expiring terms, USI said. Excess catastrophe policies for flood and earthquake are seeing even steeper reductions of 25 to 35%.

Divergent Market Trajectories Across Insurance Lines

The casualty market, by contrast, displays sharply bifurcated conditions, according to the report. Workers’ compensation remains a bright spot for insurers, marking the 12th consecutive year of combined ratios under 100% for private carriers, as claim frequency improves despite modest increases in severity.

However, commercial auto liability continues to struggle, with insurers absorbing more than $10 billion in net underwriting losses over the past two years. The average loss severity for commercial auto liability claims has more than doubled since 2015, driven largely by technological advancements in vehicle repair and social inflationary pressures on litigation outcomes, USI noted.

General and product liability lines show tentative signs of stabilization in certain segments, particularly retail, manufacturing and service sectors. Yet challenging risks continue facing elevated rates and tighter coverage terms.

Environmental insurance has emerged as a growing competitive battleground, according to USI, with the market now exceeding $3 billion in annual premiums and numerous new entrants driving aggressive pricing and product innovation.

Aviation insurance remains competitive thanks to new managing general underwriters entering the space, while international markets are expected to remain stable with no major rate increases anticipated in early 2026, the report said.

Social Inflation and Emerging Risks Drive Underwriting Concerns

The persistent pressure of social inflation across liability lines represents the market’s most significant challenge heading into 2026, USI said. Larger jury verdicts and settlements are pushing claims costs higher across automobile, umbrella, employment practices and general liability coverages. In commercial auto specifically, this dynamic has forced carriers to deploy capacity selectively, particularly for larger fleets and accounts with recent losses.

“Social inflation and reserve strengthening will continue to challenge underwriting predictability, particularly for more hazardous transportation and habitational risks. Larger jury verdicts are pushing excess liability layers to pay more claims, driving rate hikes,” the report’s authors noted.

Employment practices liability claims remain frequent and complex, with annual liability claim costs due to social inflation growing approximately 7% in 2024, according to the Swiss Re Institute—the highest annual increase in two decades. California’s recent decision to increase workers’ compensation rates by nearly 9% for the first time since 2015 signals that profitability pressures may be reaching critical thresholds in even favorable lines.

New and emerging exposures are adding another layer of underwriting complexity. Environmental carriers increasingly focus on perfluoroalkyl and polyfluoroalkyl substances (PFAS) and other emerging contaminants, with coverage exclusions becoming standard practice.

Cyber-physical convergence risks—where cyberattacks trigger physical damage or operational disruptions—are prompting insurers to bundle coverage across traditionally separate policies. Executive and professional risk carriers face deepfake and synthetic identity fraud threats, while professional services firms must grapple with artificial intelligence liability exposure as generative AI tools become integrated into operations, USI said.

View the full report here. &