2025 insurance regulatory outlook: Weathering uncertainty

States may enforce new AI and cybersecurity guidelines, driven by recent advancements in Generative AI technology. The National Association of Insurance Commissioners (NAIC) is prioritizing innovation and market service improvements while also addressing liability exposure in the AI insurance market. States like New York, Colorado, and Connecticut may lead in AI outcomes testing and governance structures. Federal scrutiny, including the Federal Trade Commission’s 2024 Operation AI Comply, might not intensify, but state efforts might ramp up, and will emphasize a focus on fairness and privacy. Collaboration between state and federal regulators is expected to address interconnected financial stability issues. In addition, the NAIC is working on possibly developing frameworks for third-party data and predictive models, emphasizing outcome transparency. States like New York may enforce stringent cybersecurity regulations while federal agencies explore a cyber insurance backstop.

The NAIC is progressing toward a new governance structure for due diligence and credit rating assessments, highlighted by work on a new solvency framework in 2025 through an outside consultant. The focus of additional NAIC solvency work includes analyzing credit risks of collateralized loan obligations (CLOs) to address risk-based capital (RBC) arbitrage. Increased transparency on offshore reinsurance reserves is a priority, potentially leading to a new actuarial guideline by 2026. Asset adequacy testing for reinsurance and RBC charges for some funds and structured securities may be under discussion, as structured securities remain under scrutiny by state regulators. The International Association of Insurance Supervisors’ (IAIS) new capital standard, now ready for implementation, aligns with the US Aggregation Method (AM) for internationally active insurance groups. Team USA believes that the US methodology more accurately reflects underlying risks and is expected to be vocal this year as the ICS is implemented to ensure positive RBC treatment of products such as variable annuities under the new standard. This new capital standard aims to enhance global engagement and improve insurance capital calculations according to new global standards.

Despite ongoing court cases, regulators are expected to closely monitor sales practices for various insurance products, including annuities. The Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) will likely continue to emphasize adherence to and actively enforce enforcing violations of the Regulation Best Interest for broker-dealers and sales professionals. The NAIC’s Suitability in Annuity Transactions Model Regulation #275 is widely adopted and enforced.

State insurance departments continue to enforce disclosure and overcharge issues in auto insurance while addressing consumer concerns about rate increases and coverage lapses, particularly in climate-impacted states with rising premiums. In late 2025, the NAIC is expected to introduce a new privacy protections model law focusing on data disclosures, retention, and security, subject to stakeholder consensus.

Record-breaking natural disasters, including ever more costly and damaging wildfires and larger and more frequent hurricanes, are driving up insurance costs and prompting regulatory actions. Insurers should prepare for more coverage denial moratoria in vulnerable areas and anticipate stricter state and federal requirements for managing climate risks. California’s moratorium on policy cancellations after major fires is a recent example.

Education and mitigation efforts will continue to be increasingly prioritized to address the affordability and accessibility of homeowners’ insurance, with the potential new legislation in states adopting a legislative’ body’s model law. The NAIC and state regulators are focusing on addressing soaring homeowners’ premiums for the long term through risk mitigation programs, catastrophe modelling and enhancing consumer education. Insurers should actively participate in these discussions and align their operations with new regulatory expectations.

Data collection on climate-related risks is expected to intensify. The NAIC’s ongoing data calls will inform future policies, and insurers should be ready to provide detailed information. Partnerships between state regulators and federal agencies, such as the Federal Insurance Office, will likely continue to shape the landscape of climate risk management in insurance.