Navigating the Insurance Crisis: Why Costs Are Soaring

TL;DR

Reinsurance capital isn't scarce, but its unwillingness to cover frequent claims is driving up your deductibles and making insurance feel broken. A massive opportunity exists to simplify policies and restore trust. #Insurtech #InsuranceCrisis #VentureStep

INTRODUCTION

If you live in a catastrophe-prone area like Florida or California, you've felt the squeeze. Insurance premiums are soaring, deductibles are becoming unmanageable, and coverage seems to be shrinking. It's a growing crisis that leaves homeowners feeling unprotected and wondering if their policy is little more than a scam. The imbalance in the insurance market is palpable, but the underlying causes are often opaque and complex.

In this solo episode from his "SUS Learnings" series, Venture Step host Dalton Anderson leverages his deep expertise in the insurance industry to demystify the problem. He outlines six core hypotheses that explain why the market is in turmoil, from the increasing frequency of extreme weather events to the shifting appetite of the global reinsurance market. This isn't just a theoretical discussion; it's a breakdown of the real-world forces impacting your wallet.

Dalton goes beyond diagnosis to explore potential solutions. He dissects the data on reinsurance capital, explains why high deductibles have become the norm, and evaluates the promise of parametric insurance. Finally, he shares a compelling startup idea for a "deductible replacement" product that could bridge the coverage gap and restore trust between insurers and the people they protect.

KEY TAKEAWAYS

• Extreme weather events are increasing in both frequency and severity, putting unprecedented financial strain on the insurance system.
• There is no shortage of reinsurance capital; rather, there's a strategic lack of interest from capital providers in covering smaller, more frequent claims, which they view as higher risk.
• This shift in reinsurance appetite forces primary insurance carriers to raise their deductibles significantly, transferring the financial burden for most non-total-loss events to the homeowner.
• The growing complexity of policies, coupled with high costs and diminishing coverage, is severely eroding consumer trust and fostering the perception that insurance is a scam.
• A significant market opportunity exists for innovative products, like deductible replacement coverage, that simplify insurance and provide clear, understandable value to customers.

FULL CONVERSATION

Dalton Anderson: Welcome to Venture Step Podcast, we discuss entrepreneurship, industry trends, and the occasional book review. ¹Everyone's felt the hardship of insurance if you live in a catastrophic prone area. ²That could be anywhere on the East Coast and on the West Coast, particularly California. ³If you're in those areas, you're acutely aware of the growing relationship and imbalance of insurance. ⁴I myself work in insurance and have a couple of hypotheses that we'll discuss later on in the episode. ⁵

Dalton Anderson: This is for my SUS learnings continued content series. ⁶SUS stands for the Startup School, and it's a free startup mentorship program offered by Y Combinator. ⁷It tells you how to create a good idea, find a co-founder, raise money, and deal with equity and arguments. ⁸It tries to get you ready for all the challenges that are unknown but are somewhat common no matter which business you're in. ⁹They try to get you squared away for the recurring issues so you can be more prepared for the unpredictable issues in each person's respective industries. ¹⁰

The Six Hypotheses on the Modern Insurance Crisis

Dalton Anderson: This episode is more related to insurance, the growing trends of insurance, and some hypotheses. ¹¹So my hypotheses are, first: Extreme weather events are increasing in severity and frequency. ¹²Basically, catastrophic events are happening more often and they're costing us more money. ¹³Think hurricanes or wildfires. ¹⁴

Dalton Anderson: Hypothesis two, I'm talking about the US market, by the way. ¹⁵There is a lack of appetite from the capital reinsurance markets to insure these types of risks, so insurance carriers are able to take less risk in those areas and not offer coverage. ¹⁶They share their risk with the reinsurance market because you're not comfortable taking 100% of a risk that could be a one-in-1,000-year storm. ¹⁷While the likelihood is low, if it does occur, it would be a massive loss and you need to have the appropriate capital. ¹⁸It's easier to spread that risk with other folks. ¹⁹

Dalton Anderson: The third hypothesis is if you're offering coverage, there's an issue with very high deductibles. ²⁰Typically, you'd see at least a 2% to 5% deductible for a catastrophic storm and other limitations regarding your roof. ²¹A big thing in Florida was contractors were pushing people, like giving gift cards, to help them put in a roof claim. ²²Walking houses after storms, not even big storms, and seeing if they had any pre-existing damage, then making a claim after that storm. ²³All sorts of weird stuff that is now illegal. ²⁴

Dalton Anderson: Hypothesis four, the only time you will really be making a claim and an insurance company paying is if it's over your deductible. ²⁵In these scenarios, it's almost kind of like a total loss. ²⁶If you have a 5% deductible on $500,000, your deductible is $25,000. ²⁷I don't know very many people that have 25 grand on hand ready to pay out when they have an insurance claim for a weather-like event. ²⁸

Dalton Anderson: There was a period where reinsurance kind of pulled back from these areas because of all the risk and how the market has been changing.

Dalton Anderson: Hypothesis six is insurance is increasingly becoming more complicated, and with all these factors being pushed onto the customer, it puts people into thinking it's a scam. ²⁹ They don't think highly of it. So those are my six hypotheses. ³⁰I had conversations with a couple of co-founders over the last couple of weeks in the parametrics market. ³¹Their varying perspectives gave me a different insight on potential directions of which I could build a company from. ³²

Why Climate Change is the Core Problem

Dalton Anderson: The core problem of all of this and the reason why we're going through this whole rebalancing is, whatever you want to call it, I'll call it climate change. ³³With this climate change model, with storms, with their frequency and severity increasing, it is a problem. ³⁴We've got to figure it out because things are getting out of control and very expensive. ³⁵

Dalton Anderson: The first thing, we'll discuss the increase of frequency and severity in the world for catastrophic events. ³⁶I'm going to be discussing the US market because I live in the US and I'm most familiar with it, but the same premise applies to other markets. ³⁷

Dalton Anderson: This is from the National Centers of Environmental Information. ³⁸They have a graph from 1980 to 2025. As of April 8th, 2025, there have been 403 confirmed weather and climate disaster events with losses exceeding one billion each to affect the United States. ³⁹From 1980 to 2024, the annual average is nine events. ⁴⁰The annual average for the most recent five years is 23 events. ⁴¹You can see that from 1980 all the way over to 2025, there's a slow, hockey-stick-like slope to the graph. ⁴²Just 2023 and 2024 were massive years, just off the charts. ⁴³

Dalton Anderson: The costs are consistently increasing and the frequency is consistently increasing. That's been validated.

Dalton Anderson: It's very clear that the number of events are increasing. ⁴⁴And if you look at the other axis, the cost is increasing substantially too. ⁴⁵In 2023, it was a record you don't want, and that was $521 billion. ⁴⁶

Debunking the Myth of Scarce Reinsurance Capital

Dalton Anderson: The next thing that has to be validated is the amount of capital. ⁴⁷What if there's not enough capital because the reinsurance group is being hurt by these events and costs are increasing? ⁴⁸That is just fundamentally not true. ⁴⁹This information that I'm getting is from Gallagher Re. ⁵⁰They put out a yearly reinsurance report. ⁵¹In 2024, it was a record year. ⁵²The dedicated capital was at $769 billion. ⁵³So there's not a decrease in the amount of capital available. ⁵⁴

Dalton Anderson: There's a fundamental lack of interest to offer capital in these catastrophic prone areas. ⁵⁵Or what I'll say is there's a lack of interest to lower the terms of the attachment points of when the reinsurance would get triggered. ⁵⁶Reinsurance is similar to insurance where they would have a kind of deductible and say, for an event, your deductible would be $5 million or $25 million. ⁵⁷

Dalton Anderson: There is plenty of capital, but there is not interest to provide enough coverage for an MGA or a carrier to feel comfortable offering lower deductibles on these homes or properties that they're insuring.

Dalton Anderson: It leads to a higher attachment point demand from the reinsurers, which then flows down to the insured—the person like you getting home insurance. ⁵⁸It forces carriers to have higher deductibles because they've got to reduce their risk. ⁵⁹The general sense is that reinsurers are less comfortable with frequency events, like hail, and they're more interested in catastrophic events. ⁶⁰Higher attachment points means that there's less coverage for a frequency claim. ⁶¹They're really only covering these massive catastrophic claims. ⁶²So the carrier and the MGA need to figure out this frequency thing, and the solution for that is a higher deductible. ⁶³

The Homeowner's Dilemma: Rising Costs and Diminishing Coverage

Dalton Anderson: Once you have these high deductibles, if you are submitting a claim, most likely your claim is going to be under your deductible. ⁶⁴To have a claim over 25 grand for a normal-sized place, that's a brand new roof. ⁶⁵In this scenario that I'm talking about, there would be no coverage. ⁶⁶You would have to pay out of pocket. ⁶⁷

Dalton Anderson: I don't think all that stuff is clear and the insurance industry has to do better with providing clarity to the people that are paying them. That would probably avoid the last hypothesis that people don't understand insurance, it's becoming more complicated and people think of it as a scam.

Dalton Anderson: But insurance is really important; it helps the world go around. ⁶⁸It's a critical function, it's just that people don't understand it. ⁶⁹Homeowners, especially in Florida and in California, are in a bad spot. ⁷⁰They don't understand why insurance is so expensive. ⁷¹They don't understand why the deductibles are so much. ⁷²They don't understand why they typically won't have coverage for their roof if their roof is older. ⁷³From the insurance side, it's pretty clear. ⁷⁴People were using insurance policies as maintenance policies for their roofs and that gets very expensive for everybody else if everyone's getting a free roof. ⁷⁵

The Problem with 'Insurers of Last Resort'

Dalton Anderson: There's just such a lack of supply that people can completely dictate the terms of which they will offer coverage. ⁷⁶ A lot of people are going to an insurer of last resort. And that is not good. ⁷⁷Florida's is Citizens, and Citizens is the insurer of last resort. ⁷⁸When you're getting coverage from the insurer of last resort, you have substantially less coverage and worse service. ⁷⁹

Dalton Anderson: The main issue is that the Florida government is not supposed to be holding this much risk on their balance sheet. ⁸⁰Their balance sheet is not equipped to have this much risk, and if something came through that was the equivalent of over a 250-year storm, that would cause massive damage. ⁸¹Florida would not have enough money and they would have to get the insurance carriers in the whole state to do a special assessment. ⁸²It's not a good situation for your government to be having to step in that deeply. ⁸³The issue with states like Florida and California is that things aren't coming off of these insurers of last resort; people just keep getting added on. ⁸⁴And that creates some really bad downstream problems. ⁸⁵

A Startup Idea: Deductible Replacement Coverage

Dalton Anderson: All of those factors at play have created this very aggressive environment for homeowners. ⁸⁶This leads me into an idea that I discussed with my mom, who is also in insurance. ⁸⁷We talked about a deductible replacement coverage. ⁸⁸It'd be a frequency play, not a severity play. ⁸⁹Basically, the company would offer coverage for everything under the deductible up to the deductible. ⁹⁰

Dalton Anderson: If you started with this house example, a $500,000 house, you have a 5% deductible, so your deductible is $25,000. ⁹¹ Say something happens, like a hailstorm, and it costs $15,000. You would typically have to pay that $15,000 yourself. ^92929292Whereas if you had deductible replacement coverage, you would pay a couple hundred bucks. ⁹³In that scenario, we would pay you the money and then you would make things right. ⁹⁴It provides an opportunity for someone to come into this market and create a product that makes insurance a little bit easier to understand and makes people feel comfortable with it. ⁹⁵

Demystifying the Parametric Insurance Market

Dalton Anderson: Parametrics, if you're not familiar, is basically a contract that has predefined data sources and trigger points. ⁹⁶These would be called the data oracles and contract execution thresholds. ⁹⁷After interviewing some co-founders or leaders in that space, I came around to having different feelings. ⁹⁸

Dalton Anderson: One person was very optimistic about parametrics and wanted to bring the sophistication downward from large companies. ⁹⁹They are bullish about the market of parametrics in general. ¹⁰⁰Then I spoke with somebody else that was closer to the space that I wanted to operate in. ¹⁰¹They had undertones of regret of their decision of like insurance or parametrics in general. ¹⁰²It seems that their competitors and themselves are trying to divest their products into other areas, and the things that they've launched were less revenue than anticipated. ¹⁰³That really stuck out to me because it seems like such a good idea on the surface. ¹⁰⁴On the surface, it seemed like a great idea, and then once I dug a little deeper, it doesn't seem as promising as it used to be. ¹⁰⁵

Dalton Anderson: I think there's a long-term opportunity to make insurance products that are simple, easy to use, and are understandable to, say, a 15-year-old.

Dalton Anderson: I think there's an opportunity, long-term, to make insurance products that are simple, easy to use and are understandable to say a 15 year old. ¹⁰⁶If you could do that, I think you could have a preference. ¹⁰⁷Understanding what coverage you legitimately have and don't have easily could be a value proposition that doesn't seem too hard to execute on. ¹⁰⁸

Dalton Anderson: That was my overview of my ideas and my progression of my ideas. ¹⁰⁹I appreciate your time today. ¹¹⁰And of course, as always, wherever you are in this world, good afternoon, good evening, or good morning. ¹¹¹ Thanks for listening in. I hope you tune in next week. Until then, bye. ¹¹²

RESOURCES MENTIONED

• Y Combinator Startup School (SUS)
• National Centers of Environmental Information
• Gallagher Re (Reinsurance Report)
• Citizens (Florida's insurer of last resort)

INDEX OF CONCEPTS

Dalton Anderson, Venture Step Podcast, Y Combinator, Startup School, SUS Learnings, Reinsurance, MGA, Catastrophic Events, Climate Change, Deductibles, National Centers of Environmental Information, Gallagher Re, Traditional Capital, Alternative Capital, Attachment Points, Actual Cash Value, Insurer of Last Resort, Citizens, Rule of Indemnity, Parametric Insurance, Data Oracles, Deductible Replacement Coverage