Top risk factors facing the insurance industry in 2026
The insurance industry has long been recognized as one that requires the ability to adapt, even if change might not happen overnight. As the landscape continues to shift, it’s crucial for insurers to be cognizant of the diverse challenges they face and strategically tackle each one.
Continue reading to explore the six key challenges and risks facing insurance companies over the next year, and how they might be mitigated through hiring the right talent, especially at senior level.
6 insurance industry risk factors
As the insurance sector grapples with multifaceted challenges, identifying and understanding these risk factors is the first step in crafting a resilient strategy for the future.
1. Compliance changes
Regulatory dynamics in the insurance sector are never static. With each state presenting its unique set of rules, companies often find themselves navigating a labyrinth of compliance mandates.
In 2025, regulators remained especially proactive. According to Deloitte, nearly half of US states have now adopted the NAIC’s AI governance guidelines, and some are poised to scrutinize insurers’ AI use under existing laws.
Compliance will continue being a moving target in 2026, and it means insurers must constantly keep up with and even forecast potential shifts to address them preemptively. Failing to do so can invite hefty fines, legal action and reputational damage.
2. Cybersecurity threats
The digital age, while bringing convenience, also brings significant cybersecurity vulnerabilities. Fresh data shows that 25% of companies in 2025 experienced a data breach or cyber incident.
Given that insurance firms hold sensitive client data, they remain among the most lucrative targets for hackers. A single breach can not only compromise data but also erode client trust and inflict long-term reputational harm. It’s alarming, then, that more than one-in-five businesses still haven’t implemented basic protections like firewalls, data backups or regular software updates.
With the rapid advancement of technology, cyber threats will likewise become more sophisticated as we head into 2026. Insurers must stay a step ahead, investing in robust cyber defenses, adhering to emerging cybersecurity regulations and promoting a company-wide culture of security vigilance.
3. Technology changes
Technology’s rapid evolution is leaving no room for people sitting on the fence. Finally, insurance is catching up. By early 2026, an estimated 80% of US insurers will have a GenAI solution in production, a massive jump driven by competitive pressure and innovation.
This surge reflects a well-needed market shift in confidence: nearly 90% of insurance executives now hold positive views of AI, and 85% of underwriters see it as a competitive advantage.
Importantly, insurers are pushing tools into front-office applications, from AI chatbots for claims triage to personalized marketing. It’s a sign of growing trust in AI’s ability to deliver safely at scale. But the skills gap remains a concern: 52% of insurance leaders say their workforce lacks sufficient AI skills, and actuarial professionals in particular continue to report low adoption in day-to-day work.
Looking ahead to 2026, the industry’s focus will be on closing this gap between ambition and execution. With CEOs overwhelmingly expecting GenAI to boost productivity, insurers must double down on training, governance and “human-in-the-loop” models that build employee trust.
4. Climate change & other environmental factors
With the world facing unprecedented environmental changes, insurers find themselves dealing with increased claims related to natural disasters and environmental damage.
For example, in the first half of 2025, global insured losses from natural disasters rose to $80 billion, up $20 billion from last year and nearly double the ten-year average. The US bore a huge brunt of this, with a single California wildfire causing an estimated $40 billion in insured damage (the largest wildfire loss on record).
This intensifying risk environment means insurers must re-evaluate their models and pricing. Regulators are increasingly stepping in, from moratoriums on policy non-renewals in disaster zones to stricter climate risk management expectations.
By 2026, insurers will need to ensure their coverage offerings remain sustainable for the company and fair to customers amid climate volatility. In practice, that means integrating climate risk data, encouraging mitigation, and aligning with the higher standards that policymakers and the public now demand.
5. Talent shortage
High-performing talent remains the backbone of the insurance industry. Despite technological advancements, it’s still the human touch that discerns nuances and makes strategic decisions. But the pressing question is: Where will the next generation of talent come from?
Demographic trends foreshadow a looming talent gap. The US Chamber of Commerce warns that over the next 15 years, about 50% of the current insurance workforce will retire, leaving more than 400,000 open positions unfilled.
A Q1 2025 insurance labor study revealed that 14% of insurance companies were planning to reduce staff over the year. Going into 2026, the savviest firms will recognize that there’s an opportunity here to scoop up displaced executives and plug the experience gap created by mass retirements.
For insurers, attracting and, most crucially, retaining talent has gone from HR task to strategic imperative. Companies that build a strong talent pipeline now and invest in skill development will be best positioned to navigate the industry’s future challenges head-on.
6. Financial risks
The economic landscape is, to put it mildly, in flux. As whispers of market instability grow louder, insurers face pronounced financial risks on multiple fronts.
A Goldman Sachs survey of global insurers highlighted inflation and recession fears at the top of the list: 52% of insurers cited persistent inflation as a primary concern, and 48% are worried about a US economic slowdown or recession in 2025. Rising interest rates and equity market volatility are close behind as risk factors.
These concerns aren’t abstract. They’re influencing everything from insurers’ investment strategies for 2026 to policyholder behavior. In fact, many insurers are repositioning their portfolios toward assets like private credit to hedge against market swings.
Financial foresight and strategic risk management have never been more critical. Whether it’s preparing for a potential downturn, navigating higher claim costs driven by inflation, or capitalizing on higher yields, insurance companies must stay agile as we approach 2026. By stress-testing their portfolios and maintaining strong capital buffers, insurers can weather the gathering economic clouds and remain resilient amid uncertainty.
How insurance companies can mitigate or prevent these risks
For insurers, risk mitigation shouldn’t be a reactionary response. As 2026 approaches, it must be an embedded, continuous process. By building a proactive company culture that emphasizes strategic foresight, preparedness and adaptability, firms can navigate current challenges and also get ahead of future ones.
In practice, this looks like leveraging technology for predictive insights that anticipate cyber threats, climate volatility, or financial shocks before they hit. It also means tapping into real-time market intelligence and regulatory monitoring to ensure leaders are never blindsided by compliance changes or macroeconomic swings.
Equally, insurers need to close the skills gap exposed by the rise of AI. Upskilling staff, combining automation with human oversight, and following governance frameworks will help build the trust and competence needed to fully harness AI’s benefits.
However, the best protection insurance companies can invest in against these risks is talent. People, with their expertise, intuition and experience, remain at the heart of any effective risk mitigation strategy. Firms should continuously nurture pipelines of future leaders, keep communication lines open with prospective candidates, and create development pathways that retain top performers.
In an industry where retirements and attrition loom large, the companies that invest in their people today will be the ones resilient enough to weather 2026 and beyond.
How Hanover can help
At Hanover, we understand that in today’s volatile landscape, it’s the human element that can truly make a difference. Our extensive networks, executive search experience and deep understanding of all the nuances of the insurance industry, position us uniquely to identify and deliver the expertise your insurance company needs.
If you’re interested in having a chat about building a talent pipeline for your insurance firm, contact me directly today.
