2026 Outlook: Navigating Commercial Insurance Trends for Public Entities
Executive Summary
Global insurance markets continue to navigate a complex operating environment shaped by workforce challenges, geopolitical instability, cyber threats, social inflation and large-scale catastrophic events. Global insured losses for 2025 are projected at approximately $105 billion, among the lowest year-to-date totals since 2019. However, loss activity remains highly concentrated in a limited number of severe events, reinforcing ongoing volatility and uncertainty. While catastrophe activity moderated during the third quarter, continued exposure to hurricanes, convective storms, climate change impacts, aging infrastructure, and supply-chain and labor constraints will remain influential factors in 2026.
Market conditions vary significantly by line of coverage. Property insurance markets are showing measurable signs of stabilization following several years of disruption, with early indications of softening for well-managed public entities. This is particularly evident for catastrophe-exposed accounts that experienced significant rate increases in recent years but have not incurred severe loss activity. Liability and casualty lines remain challenged by capacity constraints, social inflation and litigation trends. Cyber insurance markets continue to improve from a capacity and pricing standpoint, supporting a renewed focus on evaluating limits adequacy in a softening but stable market, though ransomware and systemic technology risks remain prominent concerns for public entities. Workers’ compensation and ancillary lines remain generally stable, but emerging pressures tied to medical cost inflation, catastrophic claim severity and workforce demographics warrant continued monitoring.
Property Insurance Market: Stabilization and Renewed Competition
The commercial property insurance market has continued to stabilize in 2026, with conditions increasingly favoring well-managed public entity risks. After multiple years marked by elevated catastrophe losses, inflationary pressures and constrained reinsurance capacity, the market has entered a more balanced phase supported by improved underwriting results and sustained rate adequacy. Strengthened insurer balance sheets, combined with abundant catastrophe reinsurance capital, have allowed both primary carriers and reinsurers to deploy additional capacity more flexibly.
The relatively moderated catastrophe loss environment in the latter half of 2025 has further reinforced confidence across reinsurance markets, contributing to expanded carrier participation and increased competition at the primary level. Layered and shared placements are frequently oversubscribed, particularly for insureds demonstrating favorable loss experience and strong risk management practices. In these cases, pricing pressure has eased more noticeably compared to prior renewal cycles, with rate reductions increasingly supported by improved reinsurance terms, especially in lower layers and aggregate protection. For certain catastrophe-exposed public entities, this represents an optimistic shift following several years of steep rate escalation.
Underwriting discipline remains firmly in place. Insurers continue to scrutinize catastrophe-exposed locations, historical loss activity and overall portfolio risk aggregation, with a heightened emphasis on data quality, insurance-to-value and valuation methodology now considered baseline underwriting expectations. While current conditions remain favorable, both insurers and reinsurers remain sensitive to major loss events, underscoring the importance for public entities to clearly articulate how property values are established, maintained and updated to access broader coverage terms and more competitive pricing outcomes.
Strategic Opportunities for Public Entity Risk Managers
Improved property market conditions present a timely opportunity for public entity risk managers to take a proactive and strategic approach to program design. Consider the following areas of focus:
- Reassess Program Structure: Expanded capacity may allow insureds to reassess limits, retentions/deductibles and coverage structures to ensure alignment with current exposures, operational priorities and budget considerations. In select cases, improved pricing may also support efforts to stabilize or reduce total cost of risk.
- Leverage Market Competition: Increased competition is creating leverage for public entity insureds. Well-prepared underwriting submissions that highlight strong loss control practices, accurate valuations and long-term risk management planning are attracting interest from both incumbent and new markets.
- Prioritizing Early Engagement: Early engagement remains critical, particularly for complex portfolios or catastrophe-exposed risks, as underwriters continue to prioritize accounts that demonstrate preparedness and transparency.
- Promote Long-Term Stability: While pricing relief is emerging in certain segments, outcomes for 2026 will remain influenced by catastrophe activity, loss experience and broader economic conditions. Establishing consistency in program structure and maintaining strong underwriting relationships can help mitigate volatility and support longer-term stability.
Casualty and Liability Markets: Limited Capacity in Some Lines and Overall Increased Loss Development
Casualty and liability markets remain among the most challenging areas for public entities in 2026. Persistent pressures from social inflation, legal system abuse, expanding theories of liability and rising claim severity continue to impact general liability, excess liability, law enforcement liability and commercial automobile programs. While capacity remains available, it is being deployed more selectively, with heightened underwriting scrutiny applied to loss-driven accounts, high-exposure operations and plaintiff-friendly jurisdictions.
General and excess liability programs continue to face pricing and structural pressure, particularly for entities with significant public interaction or prior severe losses. Excess markets remain sensitive to verdict trends and risk aggregation, resulting in tighter underwriting, reduced line sizes and, in some cases, higher attachment points. Insurers are also paying closer attention to coverage terms, exclusions and claims-made provisions as litigation patterns evolve.
Automobile liability remains one of the most strained segments of the casualty market. Rising vehicle repair costs, increased attorney involvement and adverse loss trends—particularly related to fleet and law enforcement operations—are driving continued rate pressure and higher retentions. As a result, public entities are increasingly evaluating alternative program structures and retention strategies to balance cost, capacity and risk tolerance.
Despite these challenges, insurers continue to differentiate risks based on governance, claims management and proactive risk control. Public entities that demonstrate disciplined claims oversight, effective use of loss data and coordination between risk management, legal and operations remain better positioned.
Cyber Liability and Artificial Intelligence
Cyber risk remains a core concern for public entities as ransomware, business email compromise and system disruptions continue to drive claims activity. While cyber insurance markets have improved with increased capacity and more stable pricing, underwriting scrutiny remains high, with insurers focused on cybersecurity controls, incident response preparedness and governance practices amid rising regulatory oversight and data-breach litigation. In this environment, public entities should be regularly reassessing cyber limits and retention levels to confirm adequacy relative to evolving exposures, rather than allowing short-term pricing improvements to drive coverage decisions.
The growing use of artificial intelligence across public sector operations introduces emerging risk considerations. Insurers are increasingly evaluating AI governance frameworks, data controls and the level of human oversight in automated decision-making. Public entities are encouraged to inventory AI usage and review insurance programs to understand potential coverage implications related to evolving technology risks and new generative AI exclusions.
Litigation Financing and Claims Severity
Third-party litigation funding continues to influence claim outcomes across the public sector, contributing to prolonged claims, higher defense costs and elevated settlement demands. While regulatory efforts are underway in certain jurisdictions, transparency remains limited, underscoring the importance of proactive claims management and coordinated defense strategies.
Workers’ Compensation
2026 trends continue to reflect rising severity pressures, driven primarily by increasing medical costs for catastrophic claims. Improved accident survivability, longer life expectancy for severely injured workers and higher medical technology costs have contributed to a notable increase in large losses, with claims exceeding $10 million, up more than 30% over the past three years. Inflation and broader strain on the healthcare system are further impacting claim costs, while an aging workforce and return-to-office dynamics are introducing new risk considerations. At the same time, insurers are seeing increased activity in cumulative trauma and mental health claims, reinforcing the importance of proactive safety, wellness and claims management strategies.
Conclusion
The commercial insurance landscape in 2026 is increasingly favorable for public entities, with the property market demonstrating clear and sustained signs of softening. This shift is most pronounced for catastrophe-exposed public entities that absorbed material premium increases in prior years without experiencing significant loss activity. For these accounts, pricing pressure has eased meaningfully, underwriting flexibility has improved and opportunities for rate moderation, enhanced terms and expanded participation are becoming more prevalent than at any point in the last five years. Casualty, cyber and emerging technology risks continue to warrant heightened attention as these lines remain influenced by social inflation, litigation trends and the evolving digital threat landscape.
Public entities that demonstrate proactive governance, strong internal controls and a mature approach to risk management are consistently differentiating themselves in underwriting discussions. Organizations that prioritize data integrity, invest in cybersecurity controls and engage in early, transparent renewal planning, supported by clear articulation of loss drivers and mitigation strategies, will be best positioned to navigate the year ahead. These entities are more likely to secure stable pricing, improved terms and broader carrier participation, ultimately driving more resilient and sustainable insurance program outcomes.
Alliant Insurance Services, Inc.
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