Government shutdown disrupts US insurance stability

Luke Renz (pictured), of Captives.Insure, looks at the impact of the US government’s shutdown and other US market trends.

The current US government shutdown, which began on October 1, 2025, is already triggering significant ripple effects both across the economy and in the insurance and reinsurance sectors. 

Unlike previous shutdowns, this one was spurred specifically by an impasse over the future of enhanced Affordable Care Act (ACA) subsidies, which have kept marketplace health insurance affordable for more than 24 million Americans for several years. 

Without congressional action to renew these subsidies – currently set to expire at the end of 2025 – consumers face sharply higher premiums, with experts estimating that average costs could rise by as much as 114% next year, potentially forcing millions to forgo coverage or struggle to afford adequate care.

Key impacts include:

National Flood Insurance Programme (NFIP) at risk: As FEMA's funding authorisation for NFIP only covers up to September 30, 2025, the shutdown has halted real estate closings in flood zones because property buyers are unable to obtain or renew required flood policies. AM Best estimates more than 1,000 property transactions a day could be affected.

Delayed payments: Insurance companies might face delays in receiving payments associated with federal employee benefits programmes. While Medicare payments continue, other reimbursements might be postponed, forcing insurers to draw on credit lines or reserves.

ACA subsidies and open enrolment: The possible end of enhanced ACA subsidies during a shutdown could make coverage unaffordable for millions, coinciding with the start of open enrolment on November 1 and complicating coverage access for consumers.

Climate change drives surge in reinsurance demand

The insurance industry in 2025 continues to grapple with the impact of climate-related disasters. Catastrophe frequency and severity are propelling substantial demand for reinsurance protections, alternative risk transfer arrangements such as catastrophe bonds, and capital markets-based risk sharing solutions. 

Catastrophe bond issuance, for example, reached a record $18.6 billion through Q3 2025. Total dedicated reinsurance capital hit $649 billion, evidencing industry capacity expansion. Morningstar and other analysts emphasise, however, that while long-term climate risk drives demand, a near-term softening cycle – evidenced by rising capital and pricing pressures – poses an immediate challenge to reinsurers.

Additional market dynamics:

Catastrophe bonds and multi-peril programmes: Insurers – including major players like USAA—have issued new catastrophe bonds, providing expanded multi-peril coverage through 2029 and demonstrating innovation supporting the industry’s resilience.

Specialty launches and capacity recalibration: Specialty carriers and MGAs are capitalising on profitability and expansion opportunities, as both traditional and alternative capital providers seek to respond rapidly to market volatility.

Industry innovation and competitive pressures

Mounting market and regulatory pressures are accelerating innovation within the reinsurance sector. Firms slow to adapt risk obsolescence in an environment characterised by evolving risk exposures and heightened competition. New product introductions – including parametric covers and cyber risk solutions – are helping carriers diversify and stabilise their business models. Capital deployment is widening, as alternative risk solutions and structural shifts toward capital markets-based arrangements grow more prevalent.

Cyber insurance: While growth in cyber premiums has decelerated, long-term expansion is anticipated as threats evolve and regulators demand higher security standards.

Financial stabilisation: Segment-specific success stories, such as improved reinsurance terms and higher coverage limits in select regions, illustrate that market uncertainty does not preclude pockets of favourable conditions.

Overall, October 2025 finds the reinsurance sector at a crossroads—responding to intensifying climate risks, regulatory challenges from the ongoing shutdown, and fierce market competition – while navigating uncertainty about the commercial insurance market and economic environment. With open enrolment approaching and ACA subsidies in limbo, these pressures have direct implications for millions of American consumers and for the long-term trajectory of the insurance industry as a whole. Captives.Insure continues to offer complimentary captive evaluations to help businesses optimise their alternative risk financing strategies and prepare for the unprecedented challenges ahead.

Luke Renz is senior captives consultant at Captives.Insure. He can be contacted at: luke@captives.insure

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