After years of sharply rising premiums and fat profits, the insurance industry is at a crossroads. It's been shedding jobs-about 95,000 since early last year-as policy rates plateau for some, government subsidies dry up for others, and artificial intelligence threatens deeper cuts.

Insurance carriers and related services employed some 2.9 million workers as of September, according to new Labor Department data, marking a decline of around 3% since February 2025. The overall civilian labor force, on the other hand, has remained about the same size at about 170 million.

The industry's shrinkage makes it the biggest job shedder by category during that period. (Employment services, including temporary help, is a close second, falling by around 2.8%, or just under 90,000 jobs.)

The AI Scapegoat

AI could wipe out even more roles as it automates everything from processing simple claims, such as a broken car windshield, to generating instant quotes for new policies. But it's not the whole story.

Blaming AI for the cuts is "an overly simplistic explanation," says Robert Hartwig, a professor and Director of the Risk and Uncertainty Management Center at the University of South Carolina's Darla Moore School of Business.

"The reality is actually something far more basic," Hartwig tells Barron's.

Insurance Market Softening

A big reason for the job losses at property and casualty insurers such as State Farm, Progressive, and Farmers is that the firms are entering a softer part of their market cycle. "Rates are flattening and growth is slowing," says Hartwig. "In some cases those rates are actually declining," he adds.

Policy rates have risen so fast in recent years that such increases are no longer sustainable. What's more, higher financing costs and slowing population growth are lowering demand for new home insurance, Hartwig said.

The softer market is likely to drag on for a while. "We expect insurance labor force weakness to continue for a minimum of six months," says Michel Léonard, chief economist and data scientist at the Insurance Information Institute trade group.

Government Cuts to Medicaid and More

Health insurers are dealing with a different problem: cuts to government-subsidized Medicaid and Marketplace plans that have been enacted since President Donald Trump began his second term last year. Most recently, Elevance (formerly Anthem) filed notices in July and September with agencies in Washington, D.C., and Louisiana, respectively, for more than 300 job eliminations due to the insurer exiting its Medicaid-managed care contracts there.

Several other insurers, including Humana, Centene, and Cigna, have eliminated thousands of jobs this year, according to multiple media reports, to cut costs. None of the companies responded to Barron's request for comment on the cuts.

Shrinking profits, measured by an industry term known as the medical loss ratio $(MLR)$, are another reason for head count cuts at health insurance companies. MLR refers to the share of premiums that insurers pay back in claims. Higher ratios equal lower profits, and those ratios have been rising along-with higher claims costs. As an example, Humana's MLR in the most recent quarter ending in July was 91.1%, up from 88.4% in the previous fiscal year.

While all this may sound like bad news for the industry, it hasn't hurt stock prices-at least not yet. For example, Humana share prices have risen more than 50% this year, in part because of aggressive cost-cutting measures, including layoffs, that have assured investors that insurers are well-positioned to weather the challenges ahead.