AM Best has reported an increase in the formation of reciprocal insurance exchanges, attributed to hardening traditional markets.
According to AM Best, the hardening of traditional insurance markets and market dislocations have led to a rise in newly established reciprocal insurance exchanges, particularly within catastrophe-exposed homeowners insurance markets. The prevailing view is that the insurance market is experiencing dysfunction, characterized by rising premiums and major carriers withdrawing due to regulatory and risk pressures. In contrast, the reciprocal model aligns policyholders’ interests, operates more efficiently, and expands access to coverage by offering a sustainable, lower-cost solution where legacy insurers have failed consumers.
In California, major insurers such as State Farm and Allstate have paused or limited new homeowners policies due to escalating wildfire risks. This has resulted in skyrocketing premiums, coverage gaps, and increased reliance on the FAIR Plan. This dysfunctional market situation is exacerbated by climate-driven disasters and highlights how reciprocal exchanges can align policyholder interests to provide efficient, lower-cost solutions where traditional carriers have reduced offerings.
Kin, a direct-to-consumer digital home insurance provider, achieved 30% year-over-year revenue growth in Q3 2025 with a record 48% baseline operating margin, more than doubling its operating income. The company invested $26.5 million in growth initiatives that generated $15.8 million in new annual recurring revenue. Kin offers coverage statewide in California, including wildfire protection, according to Kin’s Q3 2025 Revenue Growth Report.
Gallagher Re estimated U.S. insured catastrophe losses at $100 billion in 2025, which is 12% above the 10-year average. The estimation includes 16 billion-dollar events with severe convective storms accounting for 51% of the total losses. These trends reflect broader market pressures in the property and casualty sector. Reciprocal exchanges offer aligned interests and cost efficiencies over traditional carriers amid elevated claims and volatility.
AM Best was founded in 1899 as the world’s first credit rating agency specializing in the insurance industry. It provides credit ratings, news, and data analytics while conducting business in over 100 countries with regional offices located in London, Amsterdam, Dubai, Hong Kong, Singapore, and Mexico City. The company celebrated its 125th anniversary in 2024.
