Insurance and Public Trust

Insurance at the Intersection: The Business Case for TrustThis article is the fourth and final installment in a series examining the strategic forces reshaping the insurance operating environment — and the integrating theme behind the three that preceded it.

Insurance is built on trust.

Policyholders trust that claims will be paid. Regulators trust that carriers are solvent and disciplined. Legislators trust that markets will function without crisis intervention. Capital providers trust that underwriting decisions are durable.

When that trust holds, regulation is calibrated, capital flows predictably, and markets remain stable. When it erodes, oversight intensifies, political intervention accelerates, and market structures distort in ways that persist long after the original grievance has passed.

Public trust is not a reputational abstraction. It is a strategic variable — one that directly shapes the operating environment insurers face and the latitude they are granted to exercise business judgment. The three preceding articles in this series addressed AI governance, capital and reinsurance dynamics, and market stability and affordability as distinct challenges. Examined together, they share an underlying structure: each issue became a legislative or regulatory priority not because the industry acted irrationally, but because the institutional trust required to defend rational action had already eroded.

The Mechanics of Regulatory Intensity

Regulatory intensity does not exist in a vacuum. It correlates directly with public perception.

When AI is viewed as opaque or discriminatory, governance frameworks accelerate. Colorado's quantitative testing mandates for predictive models did not emerge from a technical finding that algorithms were malfunctioning — they emerged from a political determination that the public could not be expected to trust algorithmic underwriting without enforceable transparency requirements. The Insurity 2025 AI in Insurance Report documented the underlying current: consumer support for AI use in insurance dropped from 29% to 20% in a single year, and 44% of respondents said they were less likely to purchase from an insurer that publicly uses AI. That is not a communications problem. That is a trust deficit being translated into regulatory architecture in real time.

When underwriting adjustments are interpreted as market abandonment, legislatures intervene. When reinsurance structures appear opaque after a catastrophe event, congressional investigations follow. The mechanism is consistent across all three domains: a business decision generates consumer or media reaction, that reaction creates political visibility, and political visibility drives regulatory response. The severity of the response is often less about the technical merits of the underlying decision than about the prevailing level of trust in the institution making it. Trust acts as a buffer — or as an accelerant.

The Narrative Vacuum and Its Costs

Recent history illustrates what happens when that buffer is absent.

The California FAIR Plan now carries more than $724 billion in exposure — up more than 230 percent since 2022. That expansion is not solely a function of catastrophe risk or reinsurance economics. Carriers made actuarially sound decisions to reduce concentration in wildfire-prone areas. Those decisions were correct by any technical measure. But they were made without a proactive public account of why disciplined underwriting protects the long-term stability of the market, and the narrative vacuum that followed was filled quickly by political actors. The result was not just reputational exposure — it was structural transformation of the market, with carriers now required to fund residual market expansion they played no role in creating.

Florida's reform cycle demonstrates the reverse dynamic. The same weather volatility exists. But targeted legislative engagement, litigation recalibration, and a sustained effort to rebuild institutional credibility shifted the narrative baseline. Litigation frequency has declined, new entrants have returned, and Citizens Property Insurance has shed hundreds of thousands of policies. The market has not been de-risked — but the trust environment has been rebuilt sufficiently to allow rational market behavior to function again.

The distinction between these two outcomes is not actuarial. It is institutional.

Trust as a Capital Variable

Capital strategy is interpreted through a trust lens, whether or not capital allocators intend it that way.

A market exit can be seen as disciplined portfolio management — or as abandonment. A rate filing can be understood as actuarially necessary — or as opportunistic. An ILS structure can be viewed as prudent risk transfer — or as opaque financial engineering that insulates global capital from accountability to local markets. These interpretations shape the policy environment in which capital operates, often before any regulatory proceeding is formally initiated.

Where trust is high, regulators may grant flexibility in forward-looking catastrophe modeling, rate adjustments, and product innovation. Where trust is low, prior approval regimes expand, data calls intensify, and market conduct examinations multiply. The Fairer Finance consumer trust index, published in mid-2025, found that confidence in insurance brands had fallen to its lowest level in four years — and that price decreases alone had not reversed the trend. The finding has direct strategic implications: trust is not rebuilt through pricing concessions. It is rebuilt through demonstrated alignment between institutional behavior and public expectation. An actuarially correct rate filing is politically dead on arrival if it arrives into an environment where the institutional trust required to defend it does not exist.

Post-Event Legitimacy and Legislative Calendars

After major loss events, the window between technical response and legislative response is shorter than most institutional planning cycles assume.

Questions move within days from whether losses were covered and claims handled fairly to whether rates were justified, whether carriers withdrew too quickly, and whether the market is functioning as a public utility or a private enterprise. Institutions that have invested in stakeholder relationships, regulatory transparency, and a coherent account of how underwriting discipline serves the public interest enter that window with political capital. Those that have not enter it on defense.

The events of late 2024 and early 2025 — including the public reaction to high-profile disputes over claims handling and the broader deterioration of sentiment documented in Forrester's 2025 health insurance trust survey — illustrated how rapidly trust deficits can translate into institutional legitimacy crises. The industry that was visible in those moments was largely absent from the preceding period when the narrative was still open.

Measuring What Cannot Be Ignored

Trust is not intangible in practice. It can be inferred from observable indicators: regulatory tone and examination frequency, legislative activity targeting specific carriers or lines, media framing following rate filings or market withdrawals, residual market growth trends, and the formation of adversarial stakeholder coalitions.

These are leading indicators of policy trajectory. J.D. Power's 2024 small commercial survey found that customers who fully understood the rationale behind a premium increase showed trust scores 142 points higher on a 1,000-point scale than those who did not. That is a measurable return on explanation — a quantified case for treating stakeholder communication as a business investment rather than a post-decision obligation.

Institutions that monitor trust signals with the same rigor they apply to capital ratios or catastrophe modeling will identify regulatory inflection points earlier, engage more effectively before legislative calendars are set, and operate with greater predictability than those that treat perception as someone else's function.

The Integrated Imperative

The traditional operating model separates the math from the message. Actuaries price the risk, underwriters select it, capital is deployed, and public affairs is engaged to defend the outcome when it becomes controversial. That sequencing is no longer adequate.

Underwriting, capital allocation, claims management, and government affairs all produce trust signals, whether or not they are managed as such. The question is not whether those signals are being generated — they are — but whether they are being generated coherently. Fragmented internal strategy produces inconsistent external signals, and inconsistent signals are interpreted as evasion.

The firms best positioned to operate effectively in the current environment are those that treat trust architecture as a strategic function: one that is designed in advance of controversy, monitored through observable indicators, and calibrated across the full range of decisions that shape how the institution is understood by the people with authority over its operating conditions.

Looking Ahead

The volatility insurers face extends beyond weather, litigation, and technology. It includes volatility in public confidence — and that volatility has structural consequences for capital access, regulatory latitude, and market participation.

Markets stabilize when trust stabilizes. Boards and leadership teams that govern trust as a strategic variable — measurable, monitorable, and integrated into decision-making before rather than after scrutiny arrives — will operate in a more predictable environment than those that address perception only when the legislative calendar is already set.

The question for every institution is whether the underwriting discipline, capital strategy, claims performance, and stakeholder engagement it is executing today are building the trust baseline it will need when the next period of volatility arrives. The time to answer that question is not during a hearing.

Bushnell Mueller helps insurers and their distribution and risk partners navigate the policy, regulatory, and reputational dimensions of strategic business issues. For more on our work on insurance and public trust, contact us.