A peer-reviewed law review article just documented, with federal data, how much more U.S. businesses pay in insurance premiums than their actual risk costs require. Here is what it found and what it means for you.

In April 2026, the Vanderbilt Policy Accelerator published a 76-page analysis of U.S. property and casualty insurance titled "Regulating Insurance as a Public Utility." The author, Brian Shearer, is a former Assistant Director of Policy Planning at the Consumer Financial Protection Bureau and the current Director of Competition and Regulatory Policy at Vanderbilt University. The paper is forthcoming in the Columbia Business Law Review. [1]

The paper is an academic argument for stronger insurance regulation. It has nothing to do with captive insurance. The author has no financial interest in the captive insurance industry.

What it does have is a complete, independently sourced, peer-reviewed analysis of what U.S. businesses and consumers actually pay for insurance versus what their claims actually cost. The findings are significant for any business owner who has watched premiums rise while wondering whether the market reflects reality.

Every company self-insures. The question is not whether, but how efficiently. The Vanderbilt data defines the cost of doing it inefficiently through the commercial market. A captive insurance company is what doing it efficiently looks like.

What the Research Found

The paper's central analytical tool is the loss ratio: the percentage of premiums paid out as claims. A loss ratio of 80 percent means 80 cents of every premium dollar goes to cover actual losses. A loss ratio of 63 percent means the insurer is keeping 37 cents of every dollar for overhead, commissions, advertising, executive compensation, and profit.

The historical norm for P&C insurance was approximately 80 percent. Health insurance companies are legally required under the Affordable Care Act to maintain loss ratios of 80 to 85 percent or rebate the difference to customers. P&C insurance, over the past decade, has averaged 63.39 percent.

Shearer's original analysis of NAIC data finds that the difference between the current 63.39 percent average and a plausible 80 percent benchmark represents approximately $100 billion in excess premiums per year. That figure is roughly 1 percent of total U.S. consumer spending. [2]

The Numbers by Line

The overpricing is not uniform across lines. Some lines are worse than others. For business owners, the most relevant findings are:

•       Workers' compensation: Five-year average loss ratio of 49.72 percent. For every dollar collected in workers' comp premiums, carriers paid out less than 50 cents in claims. This is the lowest loss ratio of any major commercial line and the primary insurance expense for staffing companies, contractors, transportation firms, healthcare employers, and agricultural operations.

•       Inland marine and equipment: Five-year average of 49.50 percent. Equipment-intensive businesses, including contractors and farm operators, pay nearly twice what is needed to cover their actual equipment claims on average.

•       Medical professional liability: Five-year average of 55.29 percent. Carriers retained approximately 45 cents of every malpractice premium dollar collected. This data is difficult to reconcile with the argument that litigation costs are the primary driver of medical malpractice premium increases.

•       Commercial property and peril: Five-year average of 59.21 percent. Still below the 80 percent benchmark, and contributing to the overall $100 billion annual excess.

•       Commercial auto: Five-year average of 69.04 percent. The hardest commercial line by claims pressure, and the closest to the 80 percent benchmark. Still below it.

The paper includes a complete breakdown of loss ratios across every major P&C line, sourced from NAIC 2024 data. The pattern is consistent: carriers are collecting substantially more than their actual claims cost requires across every major business insurance line.

Where the Money Goes

The paper documents what happens to the premiums that do not go to claims. In 2023, P&C insurers spent 16.3 percent of net premiums on selling expenses, a category that includes advertising and agent commissions. That is over $160 billion in a single year, spent to acquire customers who are legally or practically required to have the product anyway. For comparison, the entire budget of the Internal Revenue Service is approximately $18 billion. [3]

Another 10 percent of premiums went to loss adjustment expenses, which covers claims processing but also, as the paper documents, the cost of adjusters, investigators, and attorneys working to minimize payouts.

The remainder accumulated as profit and investor returns. In 2024, the P&C industry earned a return on assets and return on revenue exceeding 15 percent, up from 8 to 9 percent the prior year. The U.S. Treasury Federal Insurance Office described 2024 as a year of sharp gain in underwriting profit, despite higher estimated catastrophe losses.

The P&C industry collected $1.03 trillion in premiums in 2024. After paying all claims, $383 billion remained. The industry then earned another $164 billion in investment income. This happened while premiums continued rising.

What This Means for Your Business

The loss ratio data has a direct translation for any business owner. If your workers' compensation premium is $300,000 per year and the five-year industry average loss ratio is 49.72 percent, then your carrier has historically paid out approximately $149,000 of that in claims and kept the remaining $151,000 for overhead, commissions, advertising, profit, and executive compensation (and earning interest income on that money).

Over five years at those figures, you will have paid approximately $755,000 to fund something other than your actual claims. That is not a projection or an estimate based on advocacy assumptions. It is the arithmetic of publicly reported NAIC data, analyzed by an independent academic researcher with no financial stake in the outcome.

Business owners who might not even realize this is happening are the ones paying year after year into a commercial pool where their own favorable loss history generates no financial return. A business with a strong safety program, low claim frequency, and active claims management is subsidizing other businesses in the pool with weaker loss control. The commercial market has no mechanism to return that subsidy.

The 50 Percent Claim Denial Rate

The paper also documents the claim denial rate for P&C insurance: approximately 50 percent of all P&C insurance claims were denied in 2023. Health insurers, which are frequently described as the primary example of wrongful claim denials, denied approximately 20 percent. [4]

Of the claims formally contested with state insurance departments, the carrier's original denial position was upheld in only 4 percent of cases. That finding suggests a significant portion of initial denials are abandoned when challenged, raising questions about whether the denial rate reflects genuine coverage limits or an operational strategy to limit initial payouts.

For business owners, the practical implication is that the commercial policy they are paying for may not perform as expected at the moment it matters most.

What a Captive Insurance Company Does Differently

A captive insurance company is a licensed insurer owned by the business it insures. Instead of paying premiums to a commercial carrier, where favorable loss experience generates no financial return, the business funds its own insurance entity. Claims are paid from captive reserves. If the loss experience is favorable, the reserve accumulates as a financial asset belonging to the business. [5]

The premiums paid to the captive are a tax deduction for the parent company or companies. Under Internal Revenue Code Section 831(b), a small captive collecting $2.85 million or less in annual premiums may elect to be taxed only on its investment income rather than on its underwriting income.

A captive does not eliminate commercial insurance. Most businesses maintain their commercial program alongside the captive, which covers the retained layer, specific gaps, and risks the commercial market handles poorly. The captive is an addition to the existing structure, not a replacement.

Businesses spending $300,000 or more on total annual insurance premiums are in the range where a captive feasibility analysis consistently demonstrates real economic value. The Vanderbilt paper's loss ratio data makes the comparison straightforward: what the commercial carrier keeps beyond expected claim cost is, in a captive structure, available to build the business's own reserve.

The Vanderbilt research defines the cost of the commercial market. A captive insurance company is the structure that captures the difference between what the commercial market charges and what your actual risk costs require.

Contact 3F Captive Services to schedule a no-cost policy analysis. We review your current commercial program line by line, identify coverage gaps and overinsured areas, and help you understand what a captive structure could mean for your specific situation.

⚠  This post is for informational purposes only and does not constitute insurance, legal, or tax advice. Captive insurance structures involve complex regulatory and tax considerations. Consult qualified advisors regarding your specific situation.

Sources

  [1]  Shearer, Brian. "Regulating Insurance as a Public Utility." Forthcoming, Columbia Business Law Review (April 2026). Vanderbilt Policy Accelerator.

  [2]  NAIC. 2024 Full Year Results, Property and Casualty Insurance Industries. National Association of Insurance Commissioners, 2025.

  [3]  NAIC. 2023 Profitability Report. National Association of Insurance Commissioners, April 2025.

  [4]  Weiss, Martin. "Homeowners Beware! Big Insurers Deny HALF of Damage Claims." Weiss Ratings, September 26, 2024. Cited in Shearer (2026).

  [5]  Internal Revenue Code § 831(b); IRS Rev. Proc. 2002-75.

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