AI tops global risk index for insurance sector in 2025 as sustainability drops to bottom

The insurance sector is facing a seismic shift as artificial intelligence (AI) emerges as the top-ranked risk for the year ahead, displacing all other major concerns. Sustainability issues, once a significant focus, have dropped to the bottom of the risk index, ranking 10th out of 10.

This finding is from our latest Global forecast report. The report surveyed 170 Kennedys partners between November and December 2024, alongside detailed qualitative assessment of a wide range of client interactions, instructions and industry trends.

Now in its third year, the Forecast provides a comprehensive analysis of the key risks confronting the insurance sector. AI adoption has surged to the top of the risk list, followed by cyber attacks / outages, and extreme weather events.

Regional differences, however, highlight varying concerns. In the US, economic volatility is a lower priority, with greater attention placed on the growing challenge of social inflation, encompassing increasing litigation, expanded liability definitions, plaintiff-friendly court decisions, and higher compensatory jury awards.

In contrast, geopolitical instability has emerged as a significant concern in Asia-Pacific and Latin America, with political uncertainties and conflicts coming into sharper focus across these markets.

Sustainability issues, which previously carried greater weight in the insurance industry, have seen a marked decline in potential impact. Areas such as net-zero targets, greenwashing claims, and consumer protections now appear less urgent, potentially influenced by a new US administration and shifting political priorities as well as a more established regulatory framework.

In a multi-polar and fast moving world the sector has to stay true to its core principles. John Bruce, senior partner, explains: “By working together with their legal advisers and other experts within the insurance ecosystem, the insurance sector can develop solutions to identify new and emerging exposures, drive better outcomes and strengthen risk management strategies.”

Risk horizon

Part of that flexibility is about understanding when a risk moves from a long term concern to a critical issue. The Forecast evaluated the time horizons for the impacts of the 10 identified macro risks and found some big differences. Although AI was overall the biggest risk those surveyed felt the true impact of this would not be felt for 3–5 years, while risks such as social inflation and cyberattacks were deemed more immediate.

When looking out over a five year horizon, more than 85% of our global partners cited adoption of AI as the event which will have the highest risk impact, highlighting that the impact of AI, which is already high, is only set to grow further

Interestingly, perceptions of extreme weather risks diverged significantly by region. In continental Europe and Latin America, partners reported that insurance clients are already experiencing the effects of extreme weather. Meanwhile, in the UK, these impacts are projected to manifest more substantially in five or more years.

Much more urgent in the UK were cyber issues, and the impact of economic instability.

AI and insurance claims

As the Forecast highlights not only is AI the number one risk globally, the cost to the insurance sector of widespread AI adoption remains a huge unknown. And if a traditional policy does not consider AI related risks, it could lead to unintentional cover in the event of an AI-related loss; even though such loss had not been priced into the policy.

The insurance industry has already learned lessons from ‘silent cyber’: instances where some risks have been covered in non-cyber lines, even though that was not the intention. To prevent AI related coverage disputes, the industry must understand AI risk use-cases now and assess which risks traditional policies already (silently) cover. 

Tom Pelham, global head of cyber and data, said: “Being utterly nimble and embracing the change AI will bring is the only survival option. Sticking to traditional ways of working and interacting with the world will make insurers and corporates obsolete and alienate them from an increasingly large sector of the population that will take the technological change in its stride.”

Managing risk via collaboration

The report also highlights that the sharing of insights, expertise and experiences from a wide range of stakeholders will enable policy and business practice to manage risk, and in turn assist the insurance industry to navigate the myriad of risk factors it is facing.

Brokers, underwriters, claims handlers, C-suite, legal experts, regulators, governments and, most importantly, insureds all have a wealth of individual perspectives on each element of these evolving risks. Now they have to start sharing that knowledge in a more effective way.

Meanwhile, technology will be used both positively and maliciously across all elements of risk. Corporate awareness and adequate internal procedures will enable preparedness and allow for opportunities to be harnessed and maximised.

Meg Catalano, global managing partner, concludes: “In addition to managing these interconnected global risks, business and their insurers must also consider how their exposures are impacted by local factors. The universal challenges created by the use of AI, the threat of cyber attacks and geopolitical instability need to be considered in tandem with regional concerns such as extreme weather events, economic volatility and social inflation.”