Technology-related risks to the global insurance industry have reached historic highs, according to new research from PwC, with the proliferation of AI and ransomware bringing immediate and tangible threats.

For the first time in its 14-year history, PwC’s Insurance Banana Skins report, published biennially alongside the Centre for the Study of Financial Innovation, found that such tech risks dominate the top three concerns facing the insurance industry, leaving insurers in ‘uncharted territory’.

Polling almost 700 insurance professionals from around the world, PwC found that cyber-crime is still the top risk for the third consecutive edition, with a risk severity score at an all-time high, reflecting what the report said is a widespread sense that the industry is a ‘constant target’ for attackers.

While cyber-crime has ranked among the top two risks facing insurers for more than a decade, this year AI threats surged into second place, up from seventh just two years ago, according to the study.

As the technology gathers pace and threat actors become more sophisticated in their abilities, anxiety has grown among insurers regarding the hugely disruptive potential of genAI in the wrong hands.

Though outside actors are a critical threat, AI is also proving contentious within the insurance industry itself. The misuse or poor governance of AI has surged in prominence, for example, becoming the fastest-rising risk across the survey.

According to PwC, concerns centre on the potential for AI-driven fraud, as well as the risk of regulatory breaches due to inadequate internal controls. While AI presents transformative opportunities in the insurance sector, the report warns that failing to apply guardrails could result in more urgent threats.

The third-ranked risk, failing to keep pace with technological change, reflects long-standing challenges around legacy IT systems and the cost of modernisation.

Although companies know they are losing money through inefficiencies, the report found they are hesitating to commit to updates that may themselves soon be outdated. 

PwC said that some in the industry see this ‘banana skin’ as less of a risk to the industry, and one more for individual firms, making it a competitive differentiator between firms with their finger on the tech pulse and those slow to adapt.

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Other top risks appearing in this edition’s ranking included the macro-economy, largely due to lingering inflation and geopolitical instability, as well as risks associated with climate change, the lack of talent, trade barriers and, notably, the gathering pace of regulatory change.

Industry professionals voiced their frustration over the misalignment between regulatory priorities and the risk landscape, with the report finding the most pressing concern is that regulators are not keeping pace with emerging threats, particularly those driven by technological change.

“Overall, the results of this report paint a picture of an industry under pressure from persistent external shocks – cyber threats, technological disruption, climate change, and geopolitical instability – while also facing internal challenges of modernisation, regulation and talent,” said Harry Weber-Brown, director of partnerships at the London Foundation for Banking & Finance.

“It is a reminder that the risks insurers face are both interconnected and fast evolving.”