One of the more prescient books of our still-young century was Jacob Hacker’s The Great Risk Shift (2008), which explained how government and business were conspiring to eliminate various protections that in the past helped cushion the middle class from financial setbacks. Hacker called for an “insurance and opportunity society” with more robust pension guarantees, less-contingent forms of employment, and universal health care, among other reforms. Without a firm cushion, he argued, people wouldn’t take the sort of financial risks that make capitalism function at peak capacity.
By “insurance,” Hacker mostly meant social insurance provided by the government, sometimes in concert with private insurance companies. Hacker warned that private insurance was never going to pick up the slack. “Although markets work splendidly in most areas of commerce,” he wrote, “insurance markets often fail when we need them most.” Hacker didn’t give the private insurance industry much additional thought, except for health insurance, then inextricably tangled up with government through Medicare and Medicaid (and, after the book’s publication, with Obamacare).
But lately we’ve been seeing insurance markets fail outside the realm of social insurance, suggesting The Great Risk Shift had more applicability than perhaps the author knew. The most conspicuous instance is homeowner’s insurance. In addition to the growing unaffordability of housing, Americans are being priced out of protection for their property against fires, floods, and other acts of God. A survey by the online lending website Lending Tree found that between 2020 and 2025 home insurance rates rose 46 percent nationally. That was nearly double the rate of inflation.
Climate change clearly plays a significant role here. Insurance rates must be approved by state regulators, so rates vary from state to state. In five states, inflation exceeded homeowner’s insurance increases—West Virginia, Vermont, Maine, Alaska, and New York. What do these states have in common? According to Lending Tree, “none of the states … are in areas typically prone to hurricanes, wildfires and other major, costly weather-related disasters.”
But climate can’t be the only reason, because Colorado, which had the biggest rate increase, ranks relatively low on climate-change risk, whereas New York and Maine rank relatively high, and Florida, where climate-change risk is the highest in the country, lies in the middle range for rate increases. In a May survey by the Pew Research Center, 65 percent of homeowners cited as a major reason for property-insurance rate hikes “insurance companies wanting to make more money.” Only 46 percent cited climate change.
Insurance companies will always want to make more money—it would be perverse for them not to—so what this poll finding suggests to me is that in states where homeowner’s insurance rates are rising fastest state regulators aren’t moving aggressively enough to impose limits. If climate change were the only thing driving up insurance rates I doubt we’d see a June 2026 Public Citizen survey indicating that in 2025 the property and casualty insurance industry had its most profitable underwriting year in two decades. Profits were $68.7 billion. That’s more than twice the $25.3 billion insurers earned in profits the year before.
“Property and casualty insurance” encompasses not only homeowner’s insurance but also auto insurance. So it shouldn’t surprise us that auto insurers are abusing consumers, too. “If You Get in a Car Crash,” read a Wall Street Journal headline August 9, “The Risk Is Growing Your Insurance Won’t Pay.” The story, by Jean Eaglesham and Jaclyn Jeffrey-Wilensky, reported, shockingly, that auto insurers failed to pay out on fully 45 percent of all the auto liability and medical claims that they resolved last year. This is up from about one in three a decade ago, and amounts to a “near flip-of-a-coin chance of being left empty-handed on liability and medical claims.”
Logically, climate change would have little if any demonstrable effect on the rate of auto accidents. And anyway, the number of auto accidents dropped over the past decade from 6.82 million annually to 6.18 million. Public health policies to contain the Covid epidemic, which reduced the number of workers commuting to an office, led to a very significant drop in fender-benders—5.25 million in 2020, 6.1 million in 2021, and not much higher since. Which looks to me like an argument for remote work (other aspects of which I heartily dislike).
Auto insurers blame dwindling payouts on an increase in fraud, “driven in part,” the Journal reports, “by fake claims enhanced with AI tools.” That appears to be a real problem, albeit one better documented in the United Kingdom than in the United States. Artificial Intelligence makes it really easy to fake photographs of automobile damage. But AI fakery can’t be too much of a driver yet this side of the pond, because the rate at which auto-damage claims get turned down (as opposed to medical claims from auto accidents) hasn’t increased over the past decade. It was around 25 percent a decade ago, and it’s around 25 percent today.
The reason auto-insurance payouts fell to 45 percent is that insurers are denying en masse medical claims from auto accidents. Medical claims are much harder to fake, because the victim must furnish medical documentation that can be checked. Since insurers can’t blame AI in this instance, they blame lawyers. “People are going to litigation as a first step, instead of a last resort,” Sean Kevelighan, chief executive of an industry group called the Insurance Information Institute, told the Journal.
Litigation is indeed increasing, answers the other side in this dispute, but “that’s because more claims are being denied—not the other way around,” John Morgan, founder of the Orlando-based Morgan & Morgan, told the Journal. That makes more intuitive sense. Why go to the trouble of suing an insurer before you find out whether some claims adjuster wants to emulate the Edward G. Robinson character in Double Indemnity any deny your payout? A State Farm spokesperson suggested to the Journal that the higher rate of non-payments reflects increases in deductibles, but that would just be a different method to shift risk to the customer.
What mostly seems to be happening is that auto-insurance payouts were kept down last year to sell more policies. As with homeowner’s insurance, increases in auto insurance premiums typically exceed inflation, but last year they were well below it, according to S&P Global Intelligence numbers reported by the Journal in January. This looks like an attempt to curb the growing rate of drivers who defy legal requirements to buy auto insurance because it’s too expensive. According to the Insurance Research Council, the uninsured rate rose from 12.4 percent to 15.4 percent between 2017 and 2023.
The Journal story found one example in which the reason the insurance company declined to pay out was (to apply technical industry jargon) absolute chickenshit:
Christopher Benton hit another car, what he called a “little bumper accident,” in 2023. The Adelanto, Calif., lab technician assumed his $5,000 liability-coverage insurance claim would sail through. But Allstate-owned National General refused to pay a cent. The reason? His 15-year-old son.
The teenager wasn’t in the family’s 2012 Chevrolet Silverado at the time of the fender-bender. He didn’t even have a driver’s license. But National General said his absence from the policy application breached its requirement to disclose all household members ages 14 or over.
Remember, from your childhood, that annoying kid on the playground who loved to say, “You didn’t say ‘Simon Says’”? That kid grew up to be a claims adjuster for an automobile insurer.
Ultimately, the problem is that insurance doesn’t get regulated at the national level. Leaving its regulation to 50 different states is inefficient. Also, state governments are much easier than the federal government for insurers to bully or bribe into submission. America figured that out for most industries during the Progressive Era and the New Deal, but somehow insurers remained out of the administrative state’s grip. Why?
That story begins in 1868, when insurance regulation was just coming into being. The Supreme Court, in Paul v. Virginia, ruled that the selling of insurance policies did not constitute commerce, and therefore was not interstate commerce, so Congress could not direct the executive branch to regulate insurance under the Commerce Clause. That left regulation to the states. In 1944, though, the Supreme Court reversed itself and ruled in United States v. South-Eastern Underwriters Association that actually, yes, the selling of insurance is commerce (well, duh; they don’t exactly give those policies away), and that the Sherman Antitrust Act can therefore be deployed against them.
Insurance companies and state insurance regulators quickly swarmed to Capitol Hill and persuaded Senators Pat McCarren, Democrat of Nevada, and Homer Ferguson, Republican of Michigan, to pass a law, the McCarren-Ferguson Act, that overturned United States v. South-Eastern Underwriters Association, re-establishing that only states could regulate insurers. In the 1980s Rep. John Dingell, the very powerful Democratic chair of the House Energy and Commerce Committee, tried to pass a law imposing federal regulation on insurers, but by then the Reagan Revolution was underway. Dingell got nowhere.
A word about Pat McCarren. Despite being a Democrat, the man was an anti-New-Dealer, a Red baiter, a fanboy of the Spanish dictator Francisco Franco, an antisemite, and a pushover for the business lobby. In addition to shooing federal regulators away from insurers, McCarren bequeathed the 1950 Internal Security Act, commonly known as the McCarren Act or the McCarren-Walter Act, which required Communist organizations to register with the federal government. It also created a Subversive Activities Control Board and made it much easier to deport perceived troublemakers who hadn’t broken the law. The first two of these provisions were later repealed. The third remains on the books, and President Donald Trump is using it in his terror campaign against immigrants who dare to engage in political protest.
McCarren was the prototype for Senator Pat Geary in The Godfather Part II. Senator Geary is the guy who insults Michael Corleone at the start of the film. (“I don’t like to see you come out to this clean country, in oily hair, dressed up in those silk suits, and try to pass yourselves off as decent Americans”). Near the end of the film, Geary comes to very much regret his extreme bigotry against and rudeness toward a proud Italian-American. I don’t know what McCarren’s personal views were toward Italians, but his McCarren-Walter Act also limited immigration from southern Europe, including Italy. For years, the Las Vegas airport was named after McCarren, which was like calling it Senator Geary Airport. But in 2021 Clark County came to its senses and renamed the airport after the late Senator Harry Reid, who was a fine man.
I mention all this to establish that Pat McCarren wasn’t anybody whose opinion should command much respect these days, on pretty much any subject. Let’s repeal the McCarren-Ferguson Act, start regulating insurers at the national level, and reverse this latest manifestation of Jacob Hacker’s Great Risk Shift.