Evie Newman, underwriting and claims technician at the International Underwriting Association takes a strategic look at contextual shifts reshaping underwriting.

Are we prepared to underwrite risks we haven’t yet defined? Insurance, once solely anchored in the tangible world of ships and cargo, is navigating uncharted waters. As insurers increasingly underwrite the intangible, we witness a profound shift from the physical to the abstract.

The London market, long known for its innovation, now faces a new challenge: how to insure a world evolving faster than its models. This emerging reality was highlighted by the IUA’s CEO, Chris Jones, and Director of Underwriting, Tom Hughes, during a joint webinar with the Singapore College of Insurance on strategic responses to global risks.

The webinar highlighted three distinct categories of risk, borrowed from the International Risk Governance Council: Risks with uncertain impacts, risk in complex, interconnected systems and risks resulting from changes in context. The presentation laid out eight emerging risks, ranging from geo-political instability to AI hallucinations. Each individual risk is multifaceted, but together they form a complex tapestry that may redefine traditional underwriting.

Risks with Uncertain Impacts

PFAS and Protectionism: The Price of the Uncharted

Some risks are familiar in name but unfamiliar in scale, PFAS is a prime example, with the full extent of PFAS risk remaining to be seen. It is estimated that it would cost £1.6 trillion to clean up these “forever chemicals” across Europe. Two key factors contribute to this hefty estimate. The widespread use of PFAS has resulted in their persistent presence in soils and water, and PFAS are notoriously difficult to clean up. Insurers are carefully assessing pre-existing coverages, seeking to establish how existing pollution and contamination coverages may be impacted by fast-moving PFAS exposures. They are proactively managing exposure in respect of new and renewing policies, by requesting more information from insureds, encouraging proactive risk management or by deploying specific exclusions in respect of higher risk sectors.

Another current risk with uncertain impact is that of protectionism, most notably, the surge of tariffs imposed by the US. The tariffs have repercussions to global trade and free market access, bringing slowing global GDP growth and global insurance industry GWP in 2025. In an attempt to gain certainty in the current landscape, London market insurers have sought risk management tools, including scenario modelling for geopolitical disruptions, real-time data integration to monitor supplier performance and the use of AI and predictive analytics to anticipate failures across supply chains. Additionally, some are introducing innovative parametric solutions to help address growing vulnerabilities in global supply chains.

Risks in complex, interconnected systems

The Digital Domino Effect

‘AI won’t steal your job – someone who knows how to use AI will’. This sentiment is backed by data: a McKinsey survey found that 78% of organisations were using AI in at least one business function in 2024. From streamlining routine emails to monitoring disaster indicators for catastrophic events, GenAI tools are quickly becoming commonplace in the London market. We are viewing AI through a dual lens, as a strategic tool to drive operational efficiency and client benefit and as an insurable risk. AI also brings with it a host of challenges, including model bias, hallucinations, deepfakes, and complex liability issues. As these risks become more apparent, the London market must take a leading role in addressing them. There is a growing interest in bespoke AI coverages tailored to companies’ evolving needs. Although AI is yet to fully establish its place within the insurance industry, it is undoubtably here to stay.

Increasing GenAI use by businesses will also prompt a review of existing ‘Cyber Loss’ and ‘Computer System’ definitions used across a range of property damage and liability policies; these definitions, depending on the clause in which they reside, may act as a tool to manage AI exposures.

Recent cyber-attacks targeting the UK retail sector have highlighted a crucial shift in perception: cyber insurance is no longer a luxury but a necessity. In an increasingly risk-prone technological landscape, it is more important than ever for insurers and clients to collaborate on risk developments closely, embracing innovation with caution.

Risks resulting from changes in context

From Protest to Policy: Underwriting in a World of Social Tension

Some risks evolve not because they’re new but because the world around them changes. Geopolitical tensions, such as the ongoing Russia-Ukraine conflict and instability in the Red Sea region are driving action by insurers. Increasingly innovative approaches are emerging, as insurers use geospatial analytics and AI to map protest-prone zones and simulate the effect of political violence on insured assets. Additionally, scenario planning now encompasses election-related unrest, trade wars, and the resurgence of terrorism, particularly in urban and densely populated commercial areas.

Turning to climate change, there is an estimated protection gap of 60% for natural disasters. Whilst down from 69% in 2023, this figure could rise given the likelihood of increasingly frequent and severe damage. CAT bonds are recognised as a solution by some, allowing investors to loan insurers a premium to support catastrophic claims, with the caveat that should a catastrophe not occur, a profit is returned on their initial loan. Insurers also have a role to play in promoting proactive risk mitigation, providing speciality coverage, and incentivising climate-resilient infrastructure.

Lastly, the intersection between ESG and litigation funding is becoming increasingly significant for insurers. As ESG standards rise, so too does the volume of litigation targeting companies for alleged failures, ranging from greenwashing to labour violations. Litigation funders are entering this space, financing class actions that might otherwise have been unviable to pursue, resulting in a more volatile liability environment.

Building bridges

In an increasingly interconnected world, the challenges we face transcend borders, industries and sectors. These global risks demand a unified response, one rooted in open communication, collaboration and shared innovation. To effectively combat and mitigate these threats, IUA and its members plan to work hand in hand with leading market and industry associations to continually evolve our strategies and solutions.