Leaning into Uncertainty and Managing Risk

By Michael McKenna | May 19, 2025

In a climate of rapid, often unforeseen change, leaning into uncertainty and adapting quickly is not easy but is always advantageous. For businesses to respond to challenges and harness opportunities for growth and development, understanding risk drivers is vital.

Insurance acts as a barometer of increasing levels of risk–from political and economic volatility to technological advancements, including artificial intelligence (AI), conflicts, and trade disputes. Specialty insurers adapt to emerging risks and offer tailored solutions to help businesses manage uncertainty. We monitor the impact of key trends on commercial customers, ensuring we are responsive in our risk appetite, underwriting, and service approach, ultimately building a thoughtful, long-term view of risk.

Amid this complex picture, we must also monitor the issues that continue to influence the commercial insurance environment. These include:

  • The impact of social inflation on liability claims costs.
  • The risk and reward of integrating AI into underwriting and claims processes.
  • The need for enhanced collaboration among customers, brokers, and carriers.

Successfully responding to these factors as an industry elevates our ability to deliver for our customers, help businesses navigate the risk landscape, and ensure a resilient, sustainable insurance market.

Stemming the Tide of Social Inflation

Social inflation, characterized by increased litigation, higher jury awards, and broader definitions of liability, continues to significantly affect the commercial insurance market. We are seeing a proliferation of “nuclear” verdicts driven by evolving jury attitudes and third-party litigation funding. These factors drive claim costs, requiring insurers to adjust their underwriting approach and pricing requirements.

Social inflation affects various industries and lines of insurance, particularly product liability, commercial auto, and other complex casualty risks where nuclear verdicts have unsettled the market for excess liability coverage. Swiss Re reported that social inflation has driven a 57% increase in U.S. liability claims over the past decade, with 27 court cases in 2023 alone awarding compensation of more than $100 million each. These higher litigation costs are forcing coverage restrictions and causing businesses to raise the cost of goods.

Social inflation has intensified as public attitudes shift on corporate responsibility and social justice. The insurance industry must engage with lawmakers at the state and national levels on practical tort reform to balance fair compensation for injured parties with predictability for businesses operating in good faith. Underwriting acumen has never been more valuable, and investing in people is another key mitigation strategy for this challenging risk environment. For specialty insurers, investing in the development of talented underwriters and claims specialists, and the tools they need to succeed, is essential to delivering more stable results and deepening customers’ confidence in their insurance partners.

Intelligently Embracing AI

AI is a transformational tool for the insurance industry. By integrating AI intelligently into our processes, we can improve outcomes for customers and remain competitive. It offers significant opportunities to enhance efficiency, accuracy, and effectiveness in underwriting and claims handling, while AI-powered automation can streamline operations, reduce manual workloads, and improve decision-making processes.

For example, at AXIS we are focused on enhancing our processes in intake, submission review, and initial underwriting analysis. We are incorporating AI tools to extract relevant data, streamlining underwriting from submissions, and have invested in AI tools to augment elements of our underwriting process including quoting and policy issuance. This improves the experience for brokers and customers. We are excited about how these tools are already driving improvements while adhering to best practices in AI ethics, compliance, and governance to ensure we address potential risks.

Collaboration Between Brokers and Carriers on Emerging Risks

In uncertain times, strong broker-carrier partnerships are critical for supporting businesses. This partnership is essential for navigating challenging market conditions and ensuring that customers receive the best possible service, coverage, and price.

We expect that the risk environment will remain dynamic and continue to evolve rapidly, as seen in three notable specialty markets: management liability, casualty, and environmental.

In a particularly litigious environment, management liability risk rises. The directors and officers (D&O) market has experienced fluctuations, with an imbalance between risk and premiums in some areas of D&O, particularly public, becoming unsustainable in recent years. Our D&O experience allows us to address evolving risks, claims, and appetite through clear communication with brokers and customers. As economic and social inflation continue to impact the casualty insurance market, underwriters need to maintain vigilance by applying enhanced risk interrogation methods as part of the underwriting process to maintain profitability.

In the U.S., the environmental insurance market remains stable but faces uncertainties as new entrants aggressively position themselves for growth. Litigation and regulation of PFAS chemicals (per- and polyfluoroalkyl substances) and nuclear verdicts create added challenges requiring carefully calibrated specialty underwriting considerations in this class of business.

Emerging risks and an evolving regulatory environment remind us why brokers and customers value “custom suits” rather than “off the rack” solutions. Brokers and carriers must prioritize elevated collaboration on risk in the months and years ahead to ensure we continue to provide the specialty solutions customers need today and in the future.

Delivering in Uncertain Times

The commercial insurance market faces rising claim costs from social inflation, the challenge of AI integration, and the need for strong broker-carrier collaboration. By leaning into these challenges, the industry can deliver valuable, sustainable, long-term solutions for businesses. At AXIS, we continue to leverage data insights and our underwriting expertise to navigate complex risk transfer transactions to support our broker partners and customers.

Topics Talent Human Resources

Was this article valuable?

Here are more articles you may enjoy.

From This Issue

Insurance Journal Magazine May 19, 2025
May 19, 2025
Insurance Journal Magazine

The Entertainment Issue; Markets: Cyber & Security