Disruption is changing the insurance landscape

Insurance premiums have started to ease after several years of hardening. But the evolving risk landscape is putting pressure on boards.

The insurance environment has never been more complex, providing boards and management with much food for thought. “We’ve seen a shifting of the landscape in recent years,” says Damian Schinck, head of risk management for the Pacific region at Marsh. “Ten years ago, we used to say that 30 per cent of an organisation’s risk profile was associated with insurable risk. Now that is considerably lower — more like 10 per cent — with new risks coming at organisations and directors. We saw that with the COVID-19 pandemic and more recently with worldwide cyber outages and geopolitical tensions.”

Schinck says these risks, along with political instability and military pressures, then impact supply chains. “Five years ago, the dominant conversation was cybersecurity, now it is AI.”

Technological disruption, particularly AI, emerged as the top risk for 2025 in a recent Actuaries Institute of Australia survey of its members. It was followed by economic and financial pressures, cybersecurity, regulatory and political uncertainty, and climate change.

Some members specifically noted the risk of cybercrime associated with AI. Marsh says AI has resulted in cyberattacks more than doubling since the pandemic and becoming more sophisticated. From the insurers’ perspective, the rapid and ever-evolving nature of cyber risk poses a challenge to designing appropriate and affordable cyber insurance products.

In a recent report, KPMG notes coverage cannot be predicted based on prior claims experience, and incomplete datasets make pricing premiums challenging. Plus, the evolving nature of cyber risks makes it difficult to define in policies.

Mandy Tsang, a partner at King & Wood Mallesons, says for insurance customers, AI risks may already be covered under existing insurance programs. However, brokers and insurers are also looking at enhancements to specifically address AI-associated risks that can be incorporated into these programs. When it comes to directors and officers (D&O) policies, she says boards should consider the potential for securities class actions over disclosure of AI use, in particular claims for “AI washing” (making misleading claims about the use of AI to appear more sophisticated) which is fast becoming a regulatory focus.

Tsang says regulators and claimants are also scrutinising AI misuse and ineffective management of AI risks, which may lead to claims against directors and officers.

On a brighter note, boards can expect technology and AI to enhance the offerings they receive from their insurers. Challenger chair Duncan West GAICD, also chair of the risk committee at Suncorp, says insurers are exploring innovations such as embedded insurance (insurance-like products tied to a core non-insurance product, making it easier for customers to obtain context-relevant coverage against loss.and protection/prevention strategies).

Better news on premium pricing

Insurance premiums have started to ease after several years of hardening. “For D&O and financial lines policy, broker reports indicate that premiums have been declining,” says Tsang. “We hear that generally for such policies, it is a much more insured-friendly market than the hard market of previous years.”

Similarly, West says insurance rate increases are starting to moderate in the consumer sector as inflation and supply chain issues resolve. “In the commercial sector, particularly in large property and financial lines, we are seeing the rate cycle turn and there is downward pressure on prices.”

According to Marsh, rates in the Pacific region fell eight per cent in the first quarter of 2025, thanks to greater competition between insurers. It notes in its Global Insurance Market Index report that many of its clients used the increasingly competitive environment to negotiate better terms, enhance coverage and explore alternative risk transfer solutions such as self-insurance and captives. “We expect these trends to continue and for insurer competition to intensify, barring unforeseen changes in conditions,” says the report.

Meanwhile, Schinck notes there’s been an increase in class action activity. “We are seeing an increasing trend of litigation that stems out of the rise of class action and litigation funding firms,” he says. “Some big firms have arrived in Australia just because they think we’re a fertile place to pursue litigation. It is shareholder, employee and consumer litigation.” 

Getting the best deal

For the best terms and coverages, West says prudent companies will always provide as much detail as possible so insurers understand their risks. “On some of our bigger corporate lines, we have seen clients back their own risk management and opt for more self-insurance and higher retentions. There is heightened competition in both consumer and commercial sectors as the rate cycle turns, so this may revert to insurance risk transfer again.”

Tsang observes some companies are exploring captive arrangements. That’s when they bring their risk in-house by creating a licensed company that provides insurance to its parent and/or affiliate companies. She adds that companies are taking a more proactive risk management lens to arrange their insurance rather than applying a “set-and-forget” approach. She warns that insurers are looking for increased transparency in ESG disclosures, the prevalence of “greenwashing” claims and a growing use of AI risk exposures. These may lead insurers to request more information on the risk management programs.

“For D&Os of large Australian businesses and financial institutions, the requirement to prepare mandatory climate-related financial disclosures will require additional support for directors to understand the new liability regime and the practical steps they can take to satisfy their ‘reasonable steps’ and other duties,” she says. (See Directors’ Counsel, p56.)

Meanwhile, businesses are finding that investing more in proactive risk strategies pays off. As West notes, insurers are applying more data and risk modelling to personalise premiums and reward mitigation activities. “This shift emphasises the importance of individual risk characteristics and mitigation efforts.” For example, a poll by exposure management company Tenable found that Australian companies focusing more on preventative cybersecurity measures benefitted from lower cyber insurance premiums due to lower cyber risks, with 44 per cent experiencing reductions ranging from five to 15 per cent.

“We would encourage directors and clients to be extremely targeted about what they are buying insurance to protect,” says Schinck. “And if you’ve got a curious left field risk that’s not traditionally insurable, we think more than ever that if we can define it, then it can potentially be transferred and priced.”

This article first appeared under the headline 'Risky business' in the July 2025 issue of Company Director magazine.