The global insurance sector is undergoing a seismic shift as artificial intelligence ( AI ) overtakes all other concerns to become the industry’s top risk for 2025, marking a stark departure from previous years when sustainability held a prominent position, according to a recent report.

Sustainability concerns have dropped to the bottom of the risk index, reflecting changing industry priorities amid rapid technology advancements and geopolitical instability, finds international law firm Kennedys’ Global Forecast Report 2025, which surveyed 170 partners across the firm’s global offices.

The top three risks to the industry, the report reveals, are AI, cyber-attacks/outages and extreme weather events.

Asia-Pacific

For Asia-Pacific insurers, the impact of AI adoption is compounded by heightened cybersecurity risks. Notably, 80% of partners surveyed in Singapore, Hong Kong, Australia and New Zealand identify cyber threats as a “moderate, large or severe risk” to the industry.

The concern, the report highlights, is that as insurers integrate AI-driven underwriting, claims processing and fraud detection systems, they inadvertently expand their vulnerability to sophisticated cyberattacks.

Meanwhile, geopolitical instability is an increasing concern in Asia, with 44% of respondents believing it will have the most significant impact on the region’s insurance landscape over the next two years.

This reflects, the report notes, growing tensions around global trade, particularly between China and Western economies, as well as concerns over political unrest in key Asian markets.

“The geopolitical landscape is going through the most volatile and least predictable period since the end of the Cold War,” says Mark Errington, a partner at Kennedys Legal Solutions in Singapore. “Political violence insurers, in particular, will need to prepare for rising instability, nationalism and even civil unrest linked to climate change.”

AI: risk or opportunity

While AI presents opportunities for insurers, such as streamlining claims processing and improving risk assessments, it also introduces new liabilities. Traditional insurance policies, the report warns, may not fully account for AI-related risks, potentially leading to unintended coverage of AI-related losses.

This echoes past challenges with “silent cyber” risks, where cyber liabilities were unintentionally covered under non-cyber policies, leading to unexpected financial exposure for insurers.

The urgency of adapting to AI-driven changes is highlighted by Tom Pelham, the law firm’s global head of cyber and data: “Being utterly nimble and embracing the change AI will bring is the only survival option. Sticking to traditional ways of working will make insurers obsolete.”

Sustainability falls

The decline of sustainability as a key risk factor for insurers is the most notable shift, according to the report. Issues such as net-zero targets, greenwashing claims and consumer protections have seen reduced urgency, ranking last out of the 10 major risks assessed.

This may be influenced, industry experts suggest, by political shifts in the US, a more mature regulatory landscape, and corporate sustainability initiatives becoming more structured.

However, for Asia, sustainability risks, the law firm points out, remain a crucial long-term concern. The region is home to some of the world’s most climate-vulnerable economies, and extreme weather remains a top-three risk.

With 63% of Asia-Pacific's GDP dependent on nature, financial institutions and insurers, the report argues, cannot afford to ignore the long-term implications of climate change and biodiversity loss.

As insurers head into 2025, balancing AI-driven innovation with cybersecurity, geopolitical risks and environmental factors will be critical. For Asia, the interplay between AI, cyber threats and geopolitical instability, the report suggests, creates a uniquely complex risk environment that insurers must navigate with heightened diligence.