Top 10 Risks for the Global Insurance Industry in 2024

The top risks for the insurance industry reflect the sector’s rapidly changing nature while at the same time reinforcing its critical role in protecting global businesses, communities and governments.

In the wake of the pandemic and amid rapid technological change and economic volatility, many insurers are having to adapt to a complex and volatile set of circumstances.

Even organizations able to navigate such issues are forced to confront the looming threat of climate change and natural catastrophes, which, coupled with regulatory difficulties, present a host of challenges.

According to Aon`s Global Risk Management Survey, growing cyber threats have created uncertainty for insurers who want to grow in this space but must also manage exposure to systemic catastrophic losses. Beinsure Media has overview of the key risks for insurance and reinsurance companies.

Insurers confront challenges related to the cost and availability of reinsurance, potentially impacting their capability to offer cover profitably. To navigate this, insurers are emphasizing the optimization of their capital through portfolio differentiation using robust data, establishing stronger relationships with reinsurers, and diversifying their capital sources.

The survey identifies the top five industry risks as cyber attacks or data breaches, the challenge of attracting or retaining top talent, weather and natural disasters, regulatory or legislative changes, and an economic slowdown or slow recovery.

These risks collectively highlight the complex and intersecting nature of the insurance risk landscape. The survey reveals a 3% increase in risk readiness compared to 2021, alongside a 2% rise in income loss associated with the top 10 risks (see Cyber Security Top Trends & Cyber Attack Threats).

Despite appearances of enhanced readiness, the growth in income loss indicates an overestimated sense of preparedness, as actual risk materialization has not yet occurred. This is further evidenced by the decrease in quantified risk from 29% in 2021 to 23% in 2024, underscoring a discrepancy between perceived and actual risk management effectiveness.

Current Risks for Insurance Sector

Cyber attack or data breach is the number one risk for insurance organizations. It also occupied the industry’s number one spot in our 2021 survey and ranked number one overall in the 2024 survey.

Not only do insurance companies have large stores of sensitive data that make cyber attacks exceptionally damaging, but many organizations are also working with old and outdated systems that may no longer have adequate security measures in place.

This also serves to explain why tech or system failure, ranked #7, appears on the industry’s top 10 list (Cyber Risks, Climate Change & ESG was Main Challenges for Insurance Industry). Given how expensive and disruptive system transformations can be, companies that have opted not to update their cyber infrastructure are now contending with the consequences.

Top 10 Current Risks for Insurers

Cyber Attack or Data Breach
Failure to Attract or Retain Top Talent
Weather and Natural Disasters
Regulatory or Legislative Changes
Economic Slowdown or Slow Recovery
Damage to Brand or Reputation
Tech or System Failure
Increasing Competition
Climate Change
Failure to Innovate or Meet Customer Needs

Insurance companies possess extensive sensitive data, making them particularly vulnerable to cyber attacks, a situation exacerbated by many relying on outdated systems lacking modern security measures.

This vulnerability explains why technological or system failures rank as the seventh most significant risk in the industry’s top 10 concerns. The high costs and disruptions associated with system upgrades lead some companies to postpone updating their cyber infrastructure, facing significant risks as a result.

Insurers are actively determining the bounds of insurable catastrophic cyber loss, agreeing that cyber attacks on essential services like power, water, and internet exceed the coverage scope due to the challenges in quantifying and pricing such risks.

Cyber incidents involving nation-states also fall outside standard coverage parameters, with ongoing discussions about defining these attacks more clearly.

The U.S. government, particularly the Department of the Treasury and the Department of Homeland Security, is assessing the impact of cyber attacks on critical national security infrastructure, including the financial sector, to evaluate the need for a federal insurance response.

Emerging technologies on the horizon such as artificial intelligence (AI), quantum computing and augmented/virtual reality present additional new challenges for insurers.

Weather and natural disasters, ranked number three, as well as climate change, ranked number nine, are currently posing massive challenges to organizations. Global insured losses from natural disaster events have reached $88 bn as of the time of writing in 2023, 17% higher than average.

These losses were driven in the third quarter by severe convective storms in the U.S. and Italy as well as the Maui wildfire, according to Aon’s Catastrophe Insight. This can have long-term ripple effects on the economy, which could in turn prompt legislators to put new regulations in place — a fear reflected by the number four ranking of regulatory or legislative changes.

Another dimension of this is damage to brand or reputation, ranked number six. As insurance companies move out of vulnerable areas and become subject to more legal and regulatory scrutiny, premiums could rise for consumers. This could, in turn, negatively impact consumers’ perceptions of insurers and cause reputational and brand damage.

The challenge of securing and maintaining top-tier talent is the second most significant issue, underscoring the growing necessity for a more diverse and specialized workforce.

As firms strive to keep abreast of advancements in information and environmental issues, the demand for professionals in data and climate science becomes increasingly critical. Moreover, an aging workforce exacerbates the pressure on insurance companies to fulfill their fundamental talent requirements.

In light of evolving trends, insurance providers must recruit and nurture individuals with novel competencies, knowledge, and expertise essential for fostering innovation. Now more than ever, it is imperative for insurers and reinsurers to employ subject matter experts across various risk domains and industries, alongside talents capable of revolutionizing their operations in domains such as data, artificial intelligence, and business adaptation.

The current recruitment pace falls short of meeting these needs. The industry urgently requires individuals endowed with the appropriate mindset and skills suited to a rapidly transforming business landscape.

Although advancements in AI are enhancing efficiency across multiple facets, including decision-making support for humans, the sector is in dire need of innovative and forward-thinking talents in significant numbers.

This necessity persists even in areas where machine learning technologies find application, for example, in streamlining workflow processes. The role of underwriters exemplifies this need distinctly, given their requirement to adapt to the evolving risk profiles they insure.

Underwriters must gain a deeper insight into the business risks clients seek to mitigate. Anticipating future trends is equally crucial as reflecting on past data.

The rapid obsolescence of risk models in the insurance sector, especially in contexts like cyber and weather risks, illustrates this point vividly. In particular sectors like energy, where renewable technologies are advancing swiftly, there is an immediate demand for engineering expertise.

Solving this challenge will require transformation throughout the enterprise. Achieving cohesion and collaboration between colleagues with different skills and backgrounds is a big cultural challenge that calls for a renewed focus on engagement and belonging.

Underrated Risks for Insurers

While the risks that make the top 10 are all major considerations for insurance companies, other risks may be flying under the radar.

Geopolitical volatility did not make the top 10 current risk list and is ranked only ninth in future risks, despite the macroeconomic impacts of inflation hitting insurers in increased claims costs, for example.

AI, which also did not make the top 10 current list, could soon become a more serious consideration for companies, given the recent developments in generative AI. As we see more companies race to the market with their generative AI service offerings, it is inevitable that the inherent risks posed by the technology will affect the risk environment in which companies operate.

The rise of generative AI has introduced both legal and ethical challenges, some of which are undergoing litigation, while others are becoming focal points for regulatory developments. These challenges encompass intellectual property (IP) infringement, biases in decision-making, issues with accuracy, and concerns about privacy and security.

Although these issues might seem familiar, generative AI’s ability to process vast amounts of data amplifies these risks significantly. The complexity of explaining how generative AI operates complicates efforts to mitigate these risks.

As governments and lawmakers strive to regulate AI, it remains uncertain whether such regulations will effectively address risk management while allowing companies to harness AI’s benefits.

Effective governance of AI usage and development is crucial for companies aiming to navigate these risks in the current landscape.

Whether governance models are centralized or decentralized, maintaining core principles like accountability and transparency throughout AI’s lifecycle is vital. Companies should also consider leveraging existing data and technology governance frameworks and seek guidance from trusted advisors across various fields to adeptly manage AI-related risks.

Future Risks for Insurance Market

The top five future risks for the insurance industry are cyber attack or data breach, climate change, weather and natural disasters, failure to attract or retain top talent and economic slowdown or slow recovery.

These are all in keeping with current trends and suggest that the threats and risks most insurance companies are contending with now are showing no signs of abating.

Top 10 Future Risks for Insurers

Cyber Attack or Data Breach
Climate Change
Weather and Natural Disasters
Failure to Attract or Retain Top Talent
Economic Slowdown or Slow Recovery
Failure to Innovate or Meet Customer Needs
Artificial Intelligence (AI)
Regulatory or Legislative Changes
Geopolitical Volatility
Disruptive Technologies

Failure to innovate or meet customer needs rises from number 10 in the current risks to sixth among future risks, suggesting that the need to adapt and evolve will become more pressing as market demands change more rapidly.

Transformative trends spanning carbon capture, intellectual property and social mobility are shaping the future risk landscape, according to Aon’s new research, which identifies more than $200 billion of market potential by 2030.

The top 10 opportunities will enable insurers to respond to customer demand while increasing the industry’s relevance, growth and diversification.

AI and disruptive technologies, ranked as the industry’s number seven and 10 future risks, respectively, can pose a challenge to an organization’s growth and open the door to new forms of cyber risk and regulatory challenges. As insurance companies seek to harness the possibilities of new technology, they should practice strong governance policies to mitigate potential risk exposures.

How Can Insurance Organizations Mitigate These Risks Effectively?

The first step in addressing and mitigating risk is to be armed with the right information to assess risk in the first place. Having the right data and analytics helps inform companies, especially in data-dependent fields such as insurance, of potential outcomes that in turn lead to more effective decision making. Taking a more data-and-analytics-driven approach can help an organization avoid unforeseen pitfalls and lead to more sustainable, long-term strategy.

Focus on the fundamentals of risk mitigation should not be undervalued. Establishing a clear risk register, ensuring that it is being followed and updating it regularly all go a long way toward mitigating damage from risks.

A tendency among many insurance companies is to focus solely on the near term at the expense of a larger and more systemic perspective. This opens the door for emerging weaknesses that may not initially be noticed but nonetheless can become significant setbacks in the future.

Ensuring that risk mitigation strategies are holistic, relevant and executable is key to building both short- and long-term resilience.

This means identifying what risks are or will become most relevant to business operations and then taking an expansive approach to addressing them through the use of clearly defined and executable action items.

Without such assessments in place, risk considerations can become detached and theoretical, which can weigh down risk strategies and lead to inaction. Taking a reactive or episodic approach to risk often precludes companies from building out robust risk mitigation strategies.

Regarding cyber risk, a primary ongoing concern for insurance companies is the modernization of outdated systems and the implementation of current cybersecurity measures to fend off cyber threats.

Assessing the extent of cyber risks and determining appropriate investments in cyber infrastructure can lay the groundwork for a strategic approach to cyber risk management.

Risks Divergence by Region

From a regional perspective, there is some consistency: 5 current top 10 risks — cyber attack or data breach, business interruption, economic slowdown or slow recovery, supply chain or distribution failure, and regulatory or legislative changes — appear across all geographies.