An analysis of the most pressing concerns based on insights from 1,000 UK business leaders.
Author: Phil Daly
Businesses face an increasingly complex risk landscape in 2025; cyber threats and climate change will be key contributors in claims frequency and severity.
The myriad of threats facing businesses has made it crucial for companies to evaluate their coverage, assess the adequacy of their insurance policies, and ensure that risk management strategies reflect the evolving nature of threats.
The growing impact of extreme weather
According to the World Meteorological Organization, 2024 is set to be confirmed as the hottest year on record, with global average temperatures 1.54 degrees above the pre-industrial level for the first time1.
As the climate warms, extreme weather events are becoming increasingly frequent sources of loss and disruption. Weather-related catastrophes during 2024 led to substantial losses in many parts of the world.
The impact of extreme weather extends beyond physical damage. Major events disrupt supply chains and impact production schedules, affecting a company's ability to operate in certain regions.
Total insurance losses topped USD100 billion (at USD108 billion) during the first nine months of 2024 (for the 7th time since 2017), according to Gallagher Re. Secondary perils, including catastrophic floods in Central Europe and Spain's Valencia region, were again a major driver of loss. Climate scientists say global warming is making such extreme events more likely.
With the world facing greater risk of flooding, storms and wildfires, companies need to ensure their insurance coverage adequately addresses the threats. However, underinsurance remains a concern.
Everything we've seen points to a higher likelihood of extreme weather events happening more often. Companies should be regularly reviewing their insurance coverage to ensure that their sums insured are adequate for the potential risks they could be exposed to, to ensure they have the cover they need in the event of a claim.
Firms risk claim payout shortfalls due to inadequate cover
The impact of inflation and material shortages has meant the cost of repairs and rebuilding have gone up in recent years. While inflation is easing, calculating the correct sums insured remains important.
Underinsurance is still causing considerable financial strain for some businesses, with one estimate putting the proportion of commercial buildings underinsured at 79%2.
Ensuring that sums insured align with current rebuild costs is essential if firms are to get back up and running as quickly as possible following a loss.
The impact of underinsurance will persist until businesses are fully aligned with what they need to insure, both from a property and business interruption perspective.
We see some insurance buyers still relying on index-linked policies, assuming they are adequate. However, the percentages required to keep pace with rebuild costs are significantly higher than what index linking provides.
Firms strengthen cybersecurity postures as attacks grow in sophistication
Close to 99% of UK organisations have experienced a cyber-attack in the prior 12 months, with 85% saying that cyber attackers are taking advantage of gaps in their network3.
As companies become more dependent on digital systems, the potential impact of a cyber-attack has grown. Cyber incidents, such as data breaches or ransomware attacks, can disrupt operations, lead to financial loss and potentially causing damage to a company's brand and reputation.
The growing use of AI by cybercriminals means they can carry out more convincing and targeted attacks.
Faced with a rapidly evolving threat landscape, firms should continue to practice good cyber hygiene throughout the coming year. Investment in cybersecurity, employee training and protective technologies are key factors in improving resilience and ultimately, preventing a claim.
Brokers and insurers continue to offer essential pre-loss and post-breach services, including access to legal and forensic IT experts, in addition to valuable indemnification.
Regular reviews and strategic decision-making can help spot the gaps
Regular reviews of insurance policies and coverage will help ensure that businesses are not left exposed to a growing frequency of extreme losses. A claim experience is only as robust as the cover put in place to begin with, meaning the due diligence for a successful claim needs to happen at policy inception or renewal.
Companies can make more informed decisions about appropriate coverage and risk management strategies by understanding the full scope of their vulnerabilities, evaluating those risks and the likely impact they could have on their business.
In the current economic climate, businesses may be tempted to cut back on insurance costs, but this can have unwelcome consequences. The balance sheet protection offered by insurance is good value for money and can make a big difference in how quickly and successfully businesses will recover from a loss.
