One significant factor is social inflation, which refers to the rising costs of insurance claims linked to increased litigation, higher jury awards, and broader definitions of liability. Class action settlements are reaching record levels, and litigation funding has grown, allowing third parties to cover legal costs in exchange for a portion of recoveries. These developments, combined with elevated defence expenses and public expectations for higher settlements, continue to drive up liability coverage premiums.
Artificial intelligence (AI) also presents a dual challenge. While AI enables greater efficiency and predictive analysis, it introduces legal and cyber risks. Companies and AI platform providers may face claims involving copyright infringement, discrimination, and breaches of privacy law. Cybercriminals are also employing AI for phishing, deepfake technology, and other social engineering methods. Insurance markets have yet to fully adapt to AI exposures, though underwriters are expected to introduce policy changes as claims emerge.
Supply chain disruption remains another source of concern. The Gallagher study reported that businesses anticipate persistent strain from product recalls, cyber attacks, extreme weather, and shutdowns of transport routes. Inflationary pressures have added to manufacturing and transportation costs, while cargo theft has targeted high-demand commodities. The result has been higher business interruption risks and potential liability claims, leading insurers to adopt stricter terms and higher premiums.
For small to medium business owners, understanding these emerging risks is crucial. Proactive risk management strategies, including regular policy reviews and staying informed about industry developments, can help mitigate potential exposures and ensure adequate coverage.
