Here are five key trends the Gallagher retail brokerage experts are watching in Q1 2025.
1. Soaring social inflation
Social inflation refers to the rising costs of insurance claims due to increased litigation, higher jury awards and broader definitions of liability. These influences drive up claim costs, leading to higher premiums and impacting the insurance industry's risk landscape.
Social inflation is reaching an inflection point as the number of "nuclear" (exceeding $10 million) and "thermonuclear" (exceeding $100 million) verdicts are setting records, fueled by the growing societal opinion that businesses can afford the cost of damages. The rise of litigation funding means more third parties are financing plaintiff's legal costs in exchange for a portion of any financial recovery from the lawsuit.
Social inflation is affecting commercial auto liability through larger jury awards, increased litigation and more aggressive legal strategies. Changes in laws favoring plaintiffs and rising public expectations for higher damages from commercial companies are contributing to the growing cost of claims. These factors, along with higher defense costs, will continue to impact liability premiums in 2025.
Act now
- Bolster your risk management and loss prevention strategies by evaluating your current safety programs and employee training.
- Talk to your broker about your insurance program to ensure you have adequate coverage limits to protect against large jury awards and increased litigation costs.
- Learn more about navigating nuclear verdicts from our recent RIMS roundtable discussion.
- Be proactive with your third-party administrator (TPA) or claims provider to collaborate on defense strategies.
- Consider alternative program structures, such as self-insurance or captives, where you can retain more risk to offset costs and have more control over your insurance programs.
Contributed by Hope Eberhardt, regional vice president — Casualty practice leader, Gallagher
2. The dichotomy of AI adoption
Artificial intelligence (AI) has immense potential to boost efficiency, automate complex operations and enhance predictive data analysis. However, emerging technology almost always brings new and unforeseen risks to those that adopt it. In fact, in more than 200 legal cases, AI platform providers and their users are defending against allegations such as copyright infringement, deceptive trade practices, discrimination and breaches of privacy law, among others.
In addition, threat actors are leveraging AI to execute more convincing phishing and social engineering attacks, raising concerns about "deep fake" technology.
Therefore, it's imperative that organizations deploy a strategy for striking the delicate balance between making sound, risk-based decisions while staying technologically competitive to enhance productivity.
The insurance underwriting community has been slow to address AI exposure, but as more claims emerge in 2025, we expect carriers to modify policies to address these risks, either through affirmative coverage or exclusionary language.
We believe AI can be considered a significant silent peril, presenting vast risks and opportunities across all lines of coverage. A good starting point is to develop an AI risk assessment and embed an AI risk management framework into the overall enterprise risk management program. As AI weaves its way into every facet of business, it demands an enterprise-wide strategy to navigate the questions and uncertainties it brings to every line of coverage.
Act now
- Assess your AI risk to understand the potential threats and vulnerabilities to your business and develop a comprehensive risk-mitigation plan with the help of your insurance broker.
- Learn more about the rapidly changing state and federal regulations around AI in our on-demand webinar, The Intersection of Artificial Intelligence, Regulation and Risk Management.
Contributed by Joey Sylvester, area senior vice president, Cyber practice, Gallagher
3. Persistent supply chain disruption
According to a 2024 Gallagher study, business owners are concerned about ongoing supply chain disruptions, a trend expected to persist into 2025. The disruptions arise from events like product recalls, severe weather or wildfire, cyber attacks and shutdowns of critical transport routes.
Inflation has increased manufacturing and transportation costs, further straining the network. Additionally, supply chain cargo theft is rising, driven by economic factors, with high-demand commodities like food/beverages and electronics frequently targeted.
We're monitoring the distressed supply chain for increases of business interruption claims, higher costs for goods and services and potential liability issues. Insurers may also impose stricter terms and higher premiums due to the heightened risk of supply chain disruptions.
Act now
- Talk to your broker about insurance solutions like business interruption insurance, contingent business interruption coverage and supply chain insurance.
- Update your risk management strategies to diversify your suppliers and improve supply chain transparency.
- Explore emerging technology and tools like GPS and predictive analytics that may help you anticipate and address potential issues.
4. Shifts in CAT losses
Catastrophe (CAT) losses have historically been driven by perils like hurricanes, with reinsurance playing a crucial role in covering some of the claims. Hurricanes Beryl, Helene and Milton in 2024 were all significant events for which the insurance market was well positioned to manage the losses due to a combination of years of elevated rate cycles, balanced portfolios and more favorable terms and conditions.
However, in the past few cycles, the focus on properly underwriting and pricing for secondary perils in the market has been a growing, due to increased severe convective storm, hail, flood and wildfire losses in the US. Carriers are looking to better understand these exposures and appropriately underwrite these perils. The recent wildfire events in Southern California will contribute to this continued focus from carrier partners.
The recent California wildfires are expected to be the largest in the state's history in terms of economic and insurance industry losses. Despite the event's magnitude, it's expected to be manageable for commercial entities from an insurer and reinsurer standpoint. Nonetheless, it's likely to make securing wildfire coverage at reasonable rates more challenging soon, as carriers will continue to focus on high-prone wildfire states and portfolios and will be careful in deploying capacity — especially on portfolios with large aggregation of values in these high-risk areas.
What we're watching is the increase in frequency of severe convective storms like heavy rainfall, hail and strong winds, which is causing more loss and damage to property, infrastructure and agriculture.
The cost of claims is increasing due to rising labor and material costs to repair and rebuild more frequently, and carriers are reevaluating their appetite for risk.
Act now
- Regularly update your property valuation to ensure coverage accurately reflects the current value of assets.
- Discuss options with your broker to secure two-year rate locks, if available, to help ensure stability and predictability.
- Consider parametric insurance, which can offer fast payouts and transparent, scalable protection, making it an attractive option for businesses looking to bolster their resilience against the unpredictable nature of climate events.
- Consider alternative risk financing solutions including captive creation/utilization, and structured property solutions.
Contributed by Jared Wosleger, account executive, Gallagher
5. The impacts of global elections
We saw an unusually high number of global elections in 2024, with half the world's population casting ballots in more than 70 countries. Geopolitical tensions can significantly impact commercial insurance by increasing risk exposure, leading to higher premiums and more claims related to political violence, terrorism and civil unrest. We're continuing to monitor key regional and global conflicts that carry substantial geopolitical risk and volatility.
Geopolitical risks create volatility and can disrupt global supply chains, cause regulatory changes and create market volatility, affecting businesses' financial stability and insurance needs. Insurers may impose stricter terms and higher reinsurance costs, which are passed on to the business owner.
Act now
- Consider key geopolitical shifts and regulatory changes when evaluating your global operations.
- Talk with your broker about risk transfer solutions that can help reduce your risk.