Top Risks for Insurance Companies in 2025

In 2025, insurers face a unique set of challenges that require careful attention and proactive risk management. From macroeconomic shifts to technological advancements and reputational concerns, understanding these risks is essential for leaders in the insurance industry to stay competitive, resilient, and responsive. In this article, we’ll explore the key risks that insurance companies should address to protect their business and continue meeting the needs of their stakeholders.

Climate Risk and Catastrophe Exposure

The impacts of climate change are increasingly affecting insurance companies. Catastrophic weather events that used to be limited to specific areas, such as wildfires in California and hurricanes in Florida, are now occurring in regions that previously have not experienced such catastrophes. New risks, such as winter storms along the Gulf Coast and significant flooding in the Appalachians, are emerging. The changing climate is exposing previously resilient areas to damaging weather events, creating new insurance claim challenges. As insurers face rising claims costs in these areas, many are retreating from high-risk zones—such as discontinuing flood insurance in Florida or stepping back from insuring homes in wildfire-prone areas of California. 

The retreat from coverage raises questions about who will bear the responsibility for these risks moving forward. The potential for government intervention is higher than ever, and companies must consider and prepare for the possibility of potential rate difficulties or mandated coverage changes. 

How do we evolve? Insurers can invest in climate risk modeling, enhance catastrophe management strategies, and collaborate with regulators to help shape resilient, sustainable policies. As states develop climate resilience programs and policy changes, insurers must prioritize proactive regulatory compliance.

Macroeconomic Pressures: Inflation and Investment Returns 

The global economy in 2025 presents a complex path forward for insurers. Inflation remains high, which tends to increase loss costs and operational expenses, putting new pressures on combined ratios. Inflationary pressures are contributing to an increase in claims-related expenses, including vehicle repair and replacement, legal defense, and construction material costs. Uncertainty abounds related to potential tariffs and additional trade restrictions, which could further increase the cost of doing business. 

On the other hand, bond interest rates remain high and the equity market is emerging from two extremely hot years of growth, providing insurers with attractive investment opportunities. Treasury bonds, in particular, are delivering solid returns, offering some relief in terms of financial performance. This has allowed insurers to bolster their bottom lines through favorable investment yields.

What’s next? To navigate these challenges, insurers should carefully assess their investment strategies and diversify their portfolios. Balancing risk exposure across asset classes, while factoring in inflation and claims cost trends, will be essential for long-term stability. 

Tax Uncertainty and Regulatory Change 

The insurance industry is no stranger to regulatory changes, and with the new U.S. administration, there is considerable uncertainty about the future of tax policy. With key provisions of the 2017 Tax Cuts and Jobs Act (TCJA) set to expire on December 31, 2025, the potential for new tax legislation could have far-reaching implications for insurers.  Many expect that the legislature is likely to extend relevant provisions during 2025, however, the debate over funding the tax break extensions continues to create uncertainty. Companies should monitor developments closely to understand how changes in tax law might impact their operations, investment strategies, and profitability. 

So, what now? Insurers should keep a close eye on Congress’ progress on updated tax legislation. They should also prepare for potential changes in insurance regulation at both the state and federal levels. Staying up-to-date on such changes is essential to maintaining compliance, protecting the long-term sustainability, and achieving favorable tax outcomes.

AI and Cybersecurity: Data Vulnerabilities and Ethical Considerations 

As insurance companies increasingly rely on artificial intelligence (AI) and data-driven technologies, the risks associated with cybersecurity and the ethical use of AI have become more prominent. Insurers typically hold vast amounts of sensitive data, making them prime targets for cyberattacks. With the growing frequency and sophistication of cyber threats, protecting sensitive data is a top priority. Additionally, fair development of AI models that are free from bias is becoming a crucial component to ensuring that insurance pricing is not discriminatory. 

How can we navigate these challenges? Cyber insurance products are becoming more important as organizations seek to safeguard their digital assets. Key stakeholders of insurance companies are investing heavily in cybersecurity infrastructure to prevent breaches and minimize risks. At the same time, regulators are introducing new standards to address cybersecurity risks and protect policyholders, and insurers should stay informed about evolving requirements in the states and regions that they do business. 

Reputational Risk: The Growing Public Scrutiny 

Reputational risk has become an increasingly significant concern for insurance companies, particularly in a time when public opinion of the industry is at an all-time low. Negative perceptions of insurers, fueled by incidents such as delayed claims processing, high premiums, and an overall lack of transparency, can have long-lasting effects on customer loyalty and profitability. In fact, this public distrust is now playing out in the courtroom, as “nuclear verdicts” and social inflation continue to drive up claim costs. 

What can be done? Insurers can prioritize transparent communication and demonstrate their commitment to fair claims handling. Effective public relations strategies, combined with a focus on customer-centric service, is integral to mitigating reputational risks. Proactive engagement with communities, addressing customer concerns, and aligning corporate social responsibility efforts with public values can help rebuild trust in an industry facing heightened scrutiny. 

Conclusion

The risks facing insurance companies in 2025 are multifaceted and interconnected, ranging from reputational challenges to climate risks, macroeconomic pressures, and cybersecurity threats. To navigate this complex landscape, insurers can adopt a forward-thinking approach, investing in technology, enhancing risk management strategies, and staying informed about regulatory and market changes. By proactively addressing these risks, insurers can strengthen resilience, protect the bottom line, and continue to meet the evolving needs of their policyholders.

How Johnson Lambert Can Assist Insurance Companies Facing These Risks

At Johnson Lambert, we understand the unique challenges that insurance companies face in today’s dynamic and unpredictable environment. With decades of experience serving the insurance sector, we are uniquely positioned to help our clients navigate these complex risks and provide tailored solutions that drive long-term success.

• Cybersecurity Assessments: Our team can conduct thorough assessments to identify vulnerabilities in your systems, ensuring that your data and operations are protected from potential cyberattacks. As insurers adopt more advanced technologies, the risks associated with cybersecurity and data privacy are escalating. Johnson Lambert helps insurers mitigate these risks by providing comprehensive cybersecurity assessments, ensuring compliance with regulatory requirements, and safeguarding sensitive data.
• Tax Strategy Services: We provide expert guidance on navigating tax uncertainties, helping you manage the potential impact of expiring tax cuts and new regulations. We help you stay compliant with complex tax regulations, ensuring that you are well-positioned to address the challenges and opportunities presented by the changing tax landscape.
• Consulting Services: We offer a broad range of consulting services to support your business initiatives, including strategic planning, risk management, data governance, and change management. Our experts can help you develop a comprehensive strategy, implement effective governance frameworks, and navigate the evolving regulatory landscape.
• System Implementation Reviews: Our experts can conduct comprehensive reviews of your systems, assessing their design, implementation, and effectiveness. We can help you identify potential risks and vulnerabilities, ensuring that your growth initiatives are aligned with industry best practices and regulatory requirements.

At Johnson Lambert, we are dedicated to helping insurance companies navigate the evolving risks of 2025. Our deep industry expertise and tailored services empower insurers to manage these challenges effectively, ensuring resilience, compliance, and long-term success in an increasingly complex environment.