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Understanding and adapting to emerging market risks is critical to ensuring long-term business resilience. A failure to do so can make a big dent on underwriting profitability, or even impact solvency. On the asset side of the balance sheet, it can lead to unwelcome investment volatility, or steep losses. Insurers that have not managed emerging risks effectively may encounter operational issues, regulatory challenge, and reputational damage. Neither will they be able to maximize the opportunities created by the evolving risk landscape. A failure to create the covers and services that policyholders require will ultimately mean they lose out to competitors with more relevant propositions.

Emerging risks often defy containment within one risk segment. However, the following broad categories can help us understand and address the types of risks in insurance.

• Technological Risks
  Examples include cyberattacks resulting in data breaches or interference to operational technology, and liability risks emanating from AI.  

• Environmental Risks
  These include climate-change-related atmospheric changes. With resultant losses hitting both liability and property lines, the implications for insurers are broad.  

• Geopolitical Risks
  Dynamic and highly diverse, geopolitical risks include war, political unrest, trade disputes, supply-chain issues, and regulatory change.  

New types of risks in insurance emerge regularly. Below we take a closer look at 10 major risks. Our list isn’t exhaustive and it’s vital that underwriters, risk management experts, actuaries and claims teams routinely share loss data and other insights.

Automation and AI are powerful tools to cut costs, increase scale and leverage data but the associated risks can impact multiple insurance lines, and are compounded by a shortage of experts. Respondents to the Casualty Actuarial Society’s latest emerging risks survey found cybersecurity-related risks linked to AI the most worrisome, followed by manipulation, including the creation of deepfake. Other risks include data-privacy rule breaches, and errors or biases introduced by model-design or training-data flaws. Such risks could not only lead to fines, litigation, and reputational damage, but mean carriers are making critical underwriting and reserving decisions using inaccurate information. As AI regulation develops globally, and the technology is deployed for an increasingly wide range of purposes, the risks look set to increase. A robust governance and risk-assessment framework for AI and automation are essential.

Digitization, industrial automation, and geopolitical instability are increasing cyber risk. Data breach liability and associated fines are an obvious source of losses, but business interruption linked to cyberattacks and property damage caused by attacks on industrial companies are among other worrying impacts. Attacks on third-party suppliers have recently emerged as a major loss driver and highlight the potentially systemic nature of the risk as well as the need to incorporate vendors into threat monitoring. The 2024 ransomware attack on payment management service provider Change Healthcare impacted an estimated 190 million patient records. It affected thousands of hospitals and pharmacies for weeks and cost parent UnitedHealth an estimated $2.9 billion. The 2023 attack on Progress Software’s MOVEit file transfer tool affected an estimated 2,770 organizations, including Delta Airlines and Amazon, and generated dozens of lawsuits. A major risk-management challenge is that cyberattack methods change rapidly, with deepfake phishing scams just one of a number of worrying emerging trends. However, this creates the opportunity for insurers to become genuine cyber risk management partners for policyholders, with always-on cybersecurity scanning technology an increasingly popular coverage feature.

Technological innovation has generated many benefits but also multiple emerging risks in insurance. These include business interruption losses from technology outages, with the risks amplified by increased digitization and outsourcing. The CrowdStrike event in 2024 amply demonstrated the scale of the risk, when a flawed software update hit Microsoft Windows operating systems and caused an estimated economic loss of $5.4 billion, according to Toko Marine Kiln. In manufacturing, Hannover Re recently warned of risks associated with the so-called smart factory, where complex networks link suppliers, manufacturers and customers, and where production plants and logistics systems are organized autonomously, all with the aim of optimizing production. Insurers have responded to new forms of technological use with innovative products such as tech E&O policies and outsourced service provider coverage.

Climate risk is a major concern for insurers, impacting investments and well as property and liability underwriting portfolios. Natural catastrophes have in recent years increased in frequency and severity, but secondary perils associated with atmospheric changes, such as severe connective storms and flooding, have also taken a heavy toll. Reinsurers have responded to those lesser-modelled perils by increasing retentions and rates, but many primary insurers are struggling, with record losses from January 2025 wildfires in California exacerbating an insurance crisis in the state. Liability lines feeling the impact of climate change include those caught by litigation over perceived climate misdeeds or bungled transition moves. Additionally, in its 2024 Future Risks Report, Axa highlighted mass migration, and its potential to exacerbate social tensions and geopolitical instability, as a further climate-related risk.

Consumer protection worries, financial-market shocks, geopolitical crises, sanctions, cybersecurity, climate change, and AI are among the multiple factors shaping regulation and compliance. A failure to adhere to evolving regulation can trigger reputational damage, fines or even prove existential. Unsurprisingly, the Allianz 2025 Risk Barometer found that legal and regulatory change was the fourth-ranked risk among US risk management experts. Insurers face particularly stringent regulatory demands given their societal function, covering areas such as solvency, data management, affordability, the availability of coverage, and risk-management oversight. Even though the direction of travel in the US has changed with the Trump administration, it’s vital that companies across all sectors have processes to monitor and manage regulatory shifts.

Geopolitical instability and war remain elevated risks, amid conflicts in Ukraine, Middle East and sub-Saharan Africa. Political risk associated with tariffs, sanctions, and regulatory lurches is also high, while civil unrest, often fueled by rising inequalities and disruptive technologies like social media, remains a significant emerging markets risk as well as a cause of property damage and business interruption in the developed world. Allianz’s 2025 Risk Barometer – compiled before President Trump’s tariffs - found that China-Taiwan tensions were a particular worry for larger and mid-sized companies, given Taiwan’s dominance in the supply of semiconductors. Defensive insurance strategies to mitigate geopolitical risk include exclusions, and geographical retrenchment. However, (re)insurers are also using advanced analytics to create valuable solutions for clients such as covers to mitigate trade disruption.

ESG-related standards set visible benchmarks, and many businesses see these as promoting an ethos of good risk management. Insurers have the additional responsibility of shepherding companies towards ESG best practice by leveraging their underwriting and investment influence. As such they are prime targets for legal and political activism. In the US, however, the ESG mood music has changed. The discontinuation of the Net Zero Insurance Alliance in April 2024 amid anti-ESG litigation was a significant development. So too was President Trump’s withdrawal for the second time from the 2015 Paris climate accord and his curtailment of federal diversity, equity & inclusion initiatives. In addition, the SEC abandoned its legal defense of planned climate risk reporting rules. Despite all this, many shareholders and clients are likely to continue to prioritize ESG, particularly in relation to climate change. The risks associated with both ESG action, and inaction, remain high, and risk management is complicated by the fact major global economies are taking different approaches to ESG issues.

Covid-19 gave us an unwelcome taste of the impact of port closures and canceled sailings and flights. Since then, the war in Ukraine, Red Sea shipping attacks and tariffs have further highlighted the precarious nature of globalized trade and how swiftly disruption can impact prices and businesses’ ability to fulfill contractual commitments. The causes of supply-chain disruption are myriad. In 2021, the blockage of the Suez Canal by a grounded container ship held up an estimated $10 billion of trade. Other events impacting supply chains include increasingly frequent and severe natural catastrophes and labor shortages. Recent events have put supply-chain management in focus, with contingency arrangements, supplier diversification, and so-called friendshoring among the tactics being adopted. Insurers are helping clients to identify supply chain vulnerabilities and offering products such as trade disruption insurance. However, the multiple variables of complex supply chains mean this risk is hard to model.

War, natural catastrophes, labor shortages, and rising domestic demand are among the myriad factors that can lift claims costs for insurers by fueling inflation, with resultant increases in central-bank interest rates then impacting the cost of capital. In recent years, high prices have coincided with stuttering global economic growth. For insurers, that can slow premium expansion in certain lines, while also triggering elevated liability claims because of contract disputes, insolvencies and other symptoms of economic malaise. The global outlook remains highly uncertain, and in particular the impact of tariffs on economic growth and inflation. Stock and bond market volatility are also complicating investment activities, prompting carriers to consider strategies beyond public markets. In its 2025 insurance survey, Goldman Sachs Asset Management found that 58% of insurers expected to increase their allocation to private markets over the following year.

The so-called Fourth Industrial Revolution has increased emerging risks associated with a lack of innovation for all types of business, including insurers.

Incidents of left-behind companies are rife, in sectors ranging from retail, media, and technology, to transportation, and manufacturing. A classic example is the once-dominant video-rental chain Blockbuster, which filed for Chapter 11 bankruptcy in 2010. In insurance, traditional carriers have responded to the rise of digital-only startups by rolling out new distribution channels, new types of policy and new ways of engaging with customers. One overlooked risk associated with our fast-moving, technology-driven commercial environment is taking longer to adapt to regulatory change than competitors as you innovate. Insurers considering how to use gen AI, for example, need to keep abreast of nascent regulatory frameworks and ensure their activities comply with what’s locally permissible.

Emerging risks are reshaping the way insurers operate and the products they offer. Below we highlight some focus areas.

• Risk Modeling and Pricing  
  The industry is investing significantly in modeling capabilities to inform pricing and reserving decisions. Long a staple for peak property-catastrophe perils, models are becoming better equipped to address non-peak perils and are increasingly prevalent in casualty, though here the potential for liability chain reactions makes modeling challenging. When it comes to emerging risks in insurance, a significant limitation is both the lack of historical loss and exposure data and the limited value of such past insights on highly dynamic situations. Insurers are therefore incorporating forward-looking variables and scenario analysis combining historical experience with future trends into their modeling. AI and machine learning tools are turbocharging modeling by using an ever wider set of higher resolution data sources, all made possible by a step change in the computing power at our disposal. This is also facilitating the implementation of dynamic pricing, which is still rare in the insurance sector but is a tool that could potentially provide a competitive edge.

• Product Development  
  Risk and insurance evolve together, and emerging market risk has encouraged innovation. Cyber vulnerabilities have spawned multiple new covers, with cyber ILS, for example, now an established form of risk transfer. Parametric insurance is not only helping bridge the property-catastrophe protection gap but addressing risks such as non-damage business interruption. Tech errors and omissions insurance is just one of the industry’s responses to increased technological risk, while in the future AI is seen likely to become a liability class of its own. In addition, carriers are partnering with MGAs to offer innovative covers in specialist areas. They are also increasingly offering services to insureds well beyond core risk transfer, including risk assessment, prevention and mitigation.

• Operational   
  The array of emerging risks that insurers confront include risks associated with their own, increasingly digitized, operations. The industry is responding by measures including developing or improving enterprise risk management systems, strengthening cybersecurity and oversight of outsourced technology suppliers, and upgrading stress testing. Insurers have also reconfigured their operational architecture to take a joined-up approach to data-exchange, with risk management experts, compliance professionals, actuaries, claims teams, underwriters and marketing professionals sharing insight.
  

The rapidly changing risks insurance environment has prompted (re)insurers to overhaul policies and processes and put regulators on high alert.

• The Rise of Predictive Analytics  
  Predictive analytics combines statistical models, machine leaning and multiple sources of data, including real-time insights as well as historic information, to find patterns. It can’t promise 100% accuracy but can certainly improve underwriting processes and pricing, ultimately protecting loss ratios. Its multiple other uses include helping claims handers triage claims and detect fraud and informing reserving and new business development. In a recent Cap Gemini survey of almost 300 senior P&C executives across 15 markets, 83% said predictive models were critical for the future of underwriting, though only 27% considered their companies to have advanced capabilities. A degree of underwriter resistance is one obstacle to overcome. Companies deploying predictive analytics should also be braced for regulatory challenge.

• Increased Collaboration and Partnerships 
  Public-private partnerships, commercial alliances and knowledge-sharing form bedrocks of emerging risks insurance. Some proposals call for risk to be taken out of the commercial market altogether, with systemic cyber risk seen as the prime candidate for a new type of public reinsurance backstop. Elsewhere, carriers are building on their digitalization-driven relationship with the technology sector. A number, for example, are working with tech companies to create predictive models for cyber risk. They are also tapping into the analytical resources of brokers and reinsurers. Knowledge-sharing initiatives include Willis Towers Watson’s tie-up with the University of Colorado Boulder to transfer scientific advances in seasonal climate prediction to the (re)insurance industry and the UN’s Forum for Insurance Transition to Net Zero.

• Evolving Regulatory Landscape 
  Changing regulation is an emerging risk itself, with fines and reputational damage two potential outcomes of not complying with new rulebooks. It is also shaping the way (re)insurers address emerging risks. A major recent development came in California, where the regulator permitted insurers to use cat modeling in wildfire rate-setting as part of its Sustainable Insurance Strategy. Meanwhile, proposed legislation in the state will restrict insurers’ use of aerial imagery, a key component of AI-powered property risk modeling. On climate risk, listed (re)insurers look to have escaped mandatory climate-related disclosures after the SEC in February signaled it will halt its legal defense of the controversial framework. However, since climate-driven weather events and transition risk remains a mounting cause for concern, companies will continue to refine strategies for mitigating this major risk, whatever the prevailing regulatory direction of travel.

Navigating emerging market risks effectively is a critical skill but knowing where to start can be difficult. Below we share three strategies to put you on the front foot.

Robust risk management involves risk and compliance experts from the outset in decisions about digitization and AI investment; cybersecurity; product creation and development; entry into new lines and new geographies; and capital management. Viewing operational and strategic decisions through a risk lens will facilitate innovation that is sustainable and less likely to harbor unforeseen risks. Many insurers, particularly large and complex organizations, are also adopting or enhancing enterprise risk management systems to ensure risks across the whole company are understood and controlled. They are taking a proactive approach to stress testing and in some cases engaging in so-called reverse stress testing, involving complex scenario analyses of various uncorrelated risks that could lead a company to fail.

Insurers are investing heavily in technology to better identify emerging risks, aggregate insights across the organization and make sense of the vast amount of unstructured data at their disposal. As we’ve discussed, improved modeling capabilities and predictive analytics are part of the solution. So too are AI, machine learning and the large language models underpinning generative AI. To leverage technology and innovation effectively, companies need to be clear about what they want to achieve and get organization-wide buy-in. They will probably also need more IT specialists and data scientists, which requires significant investment and careful planning. Technology, of course, introduces its own risks that need to be managed.

In recent years, agility has trumped scale as a marker of which carriers are likely to be successful. In a sector that isn’t known for its fast footwork, the best prepared insurers can innovate rapidly to create new types of cover to address emerging risks, and continuously improve their products based on customer or broker feedback. They can also respond quickly to catastrophic events, and to changing underwriting conditions and loss data. Part of building a culture of agility involves tearing down silos between lines of business and functions such as underwriting, claims and actuarial, to better harness data. It may also mean a rethinking of old hierarchies and top-down ways of working.

Emerging risks are multiplying and fast changing but so too are the levers to manage them. Holistic risk management strategies, improved modeling and analytics, technology collaborations and knowledge-sharing initiatives are among these, with the industry continuously honing its responses.

Insurance Insider US is a trusted source of exclusive news and analysis on insurance industry trends and will help you stay on top of emerging risks in insurance. For full access to expert insights about what’s happening now and what’s on the horizon in the complex and competitive insurance market subscribe to Insurance Insider US today.