The insurance industry is facing a significant shift as average claim severity rises while claim volume plummets to a five-year low. This trend, driven by reduced catastrophe events and favorable weather, presents unique challenges for claims professionals. Understanding how to adapt to this new landscape is crucial for the profession’s future. A recent report from Verisk highlights that over one million total claim assignments were recorded in the third quarter of 2025, a substantial 28.5% decrease compared to the same period in 2024. This decline spans both catastrophe and non-catastrophe claims, continuing a downward trajectory observed since 2023. The unprecedentedly calm 2025 hurricane season played a pivotal role in this reduction of claims volume for the quarter. Susan Fleming, vice president of business intelligence and insights at Verisk Property Estimating Solutions, points to the decrease in storm activity as the primary driver behind these numbers. With only 55 designated catastrophe events in 2025, a stark contrast to the 73 in 2024 and 74 in 2003, the industry is experiencing a dramatic drop in claims. This 95% decrease in hurricane activity since 2024 means far fewer claims are being processed than in recent years. Fleming further elaborates that beyond hurricanes, there’s also a noticeable reduction in hail and wind events across the United States. These types of events have traditionally been the bread and butter of the claims industry, consistently generating high volumes of work. The concerning trends in declining claims volume are a subject of frequent discussion for Gregg Golson, chief strategist for Up2Now LLC. He observes that many third-party administrators and independent adjuster firms are shedding experienced non-billable personnel, including marketing staff, trainers, and quality control workers. This has led to the departure of individuals with two decades of experience who were instrumental in training new adjusters. To counter this reduced workload, some firms are intensifying their marketing efforts in storm-affected regions. They are targeting companies and property owners for services such as post-hurricane inspections, especially where Federal Emergency Management Agency funding might be available. However, these strategies often fall short of compensating for the overall decline in work. The situation is further complicated by the increasing integration of artificial intelligence and advanced technology within the industry. Featured snippet paragraph: The answer to how to navigate declining claims volume lies in adapting to higher claim severity by focusing on efficiency, leveraging technology for complex claims, and potentially diversifying services to include more proactive risk management and consulting for clients. The growing prevalence of AI means that many straightforward claims, once handled by desk adjusters, are now being managed by chatbots. These AI systems, while perhaps less empathetic, can communicate effectively and handle smaller losses, leaving fewer opportunities for new industry entrants who are not yet equipped for complex claims. This shift is leading to layoffs not only at insurance carriers but also at claims firms, driven by the lower frequency and volume of claims. AI is prompting a re-evaluation of roles, with a focus on how to utilize these tools for greater efficiency. The Verisk report presents a complex picture, with an intriguing duality. While claim volume is down, the projected mature claims severity ranges from $17,258 to $18,431, indicating that individual claims are becoming significantly more expensive to resolve. This rise in reconstruction costs, which increased by 3.75% year-over-year, is offsetting the operational relief that might have been expected from lower claim volumes. Historical data suggests that the final average claim severity for this quarter could position it as one of the highest in recent history. Fleming notes that Verisk continues to analyze where Q3 will mature, acknowledging a two-to-three-month lag in determining the final claim severity. Anecdotal evidence already points towards an overall shift where the value of filed claims is higher than in previous years, meaning the claims that are actually being filed are larger than usual. What is claim severity? Claim severity refers to the average cost or value of an individual insurance claim. It is a critical metric that indicates how expensive it is for an insurer to settle each claim. Rising claim severity means that, on average, each claim filed is costing more to resolve, even if the total number of claims decreases. The impact of reduced catastrophe events is profound. It means fewer opportunities for new adjusters to gain hands-on experience with a variety of claim types. This lack of exposure could create a future shortage of experienced professionals capable of handling the more complex and severe claims that are now becoming more prevalent. The industry needs to consider how to foster training and development in this new environment. Is AI in insurance a threat or an opportunity? AI in insurance presents both challenges and opportunities. While it automates routine tasks and can reduce the need for human adjusters on simple claims, it also frees up human professionals to focus on more complex, high-severity claims that require critical thinking and empathy. Furthermore, AI can be used to improve risk assessment, fraud detection, and customer service. The rise in reconstruction costs is a significant factor contributing to higher claim severity. Inflationary pressures, supply chain issues, and increased demand for building materials all play a role. Insurers must account for these rising costs when setting premiums and reserves. This dynamic makes it even more critical to accurately assess and manage the severity of each claim. The trend of decreased catastrophe activity, while potentially beneficial for insurers in terms of reduced payouts from major disasters, creates a less predictable environment for claims professionals. It necessitates a shift in focus from managing high-volume, lower-severity events to handling lower-volume, higher-severity claims. This requires a different skill set and strategic approach. Understanding the interplay between claim volume and claim severity is essential for insurers and claims professionals alike. The current environment demands agility and a willingness to embrace technological advancements and evolving industry practices. The future of the claims profession will likely involve a more specialized and technologically adept workforce. What is the role of technology in modern claims management? Technology is transforming claims management by enabling faster processing, better data analysis, improved customer communication through AI-powered chatbots, and more accurate damage assessments using drones and image recognition. It also aids in identifying fraudulent claims and optimizing resource allocation. The long-term implications of this trend are still unfolding. However, it is clear that the insurance industry must innovate and adapt to remain resilient. This includes rethinking training programs, exploring new service offerings, and leveraging technology to its fullest potential. The ability to manage increasing claim severity effectively will be a key differentiator. The decline in claims volume, particularly from natural disasters, means that the experience gained by adjusters on these events is becoming rarer. This could lead to a skills gap in the future, making it harder to staff claims departments during periods of increased catastrophe activity. Proactive measures are needed to ensure a steady supply of experienced adjusters. How can insurance companies adapt to rising claim severity? Insurance companies can adapt by refining their underwriting processes to better reflect current risks, investing in advanced analytics for more accurate claims assessment, improving fraud detection mechanisms, and potentially adjusting their product offerings to account for higher reconstruction costs and inflation. The insurance industry’s ability to navigate these changes will depend on its foresight and willingness to invest in new strategies and technologies. The golden zone for claims professionals now lies in mastering the complexities of higher severity and leveraging the efficiencies offered by modern tools.
