Insurance claim costs are rising due to increased litigation, higher jury awards, and expanding liability definitions, according to a report by Gallagher on commercial insurance trends in 2025.
This trend, generally called "social inflation" is accelerating, the report noted, with the number of nuclear (exceeding $10 million) and thermonuclear (exceeding $100 million) verdicts fueled by perception that businesses can afford higher payouts. The rise of litigation funding is further amplifying claims, as third parties finance lawsuits in exchange for a share of settlements.
Commercial auto liability is particularly affected, with larger jury awards, increased legal tactics, and evolving laws, Gallagher cautioned. These factors, along with rising defense costs, will continue to push liability premiums higher this year.
Hope Eberhardt, regional vice president — Casualty Practice Leader at Gallagher, advised to strengthen risk management and loss prevention through safety programs and employee training and ensure coverage limits are adequate. Companies can also collaborate with third-party administrators or claims providers on defense strategies, or consider exploring alternative risk management options (such as self-insurance) for greater cost control.
Navigating AI risks
The rise of AI adoption also impacts insurance trends. While it enhances efficiency and automation, AI also introduces legal, security and compliance risks. The report noted that more than 200 lawsuits cite issues like copyright infringement, privacy breaches, and discrimination, while cybercriminals exploit AI for sophisticated attacks involving phishing and social engineering attacks.
As AI risks grow, insurers are expected to adjust policies in 2025, either offering coverage or adding exclusions. Joey Sylvester, area senior vice president, cyber practice, Gallagher, wrote that a good first step is proactively assessing AI risks and integrating them into the company’s overall enterprise risk management.
Supply chain and extreme weather disruptions
In a 2024 Gallagher study, 68% of business owners surveyed pointed out concerns on persistent supply chain disruptions, a trend which the company expects to persist into 2025. These disruptions can range from product recalls to severe weather, cyberattacks, and transport shutdowns. Inflation and rising cargo theft could also further strain businesses.
“Insurers may impose stricter terms and higher premiums due to the heightened risk of supply chain disruptions,” the report noted.
Natural disasters also remain a risk, but insurers are increasingly focused on secondary perils like wildfires, hail, and flood and recent California wildfires may lead to stricter underwriting and higher premiums, according to Gallagher Account Executive Jared Wosleger.
Severe convective storms like heavy rainfall, hail and strong winds, are causing more property damage, with rising repair costs further impacting claims, Wosleger noted. Wosleger recommended regular updates to property valuations, exploring two-year rate locks for pricing stability, and considering parametric insurance for faster payouts.
Rising geopolitical tensions are also increasing risk exposure, leading to higher premiums on claims related to political violence and civil unrest. These risks disrupt supply chains, affect regulatory changes, and create market volatility, impacting financial stability and insurance costs.
In turn, this could cause insurers to impose stricter terms and higher reinsurance costs, which then gets passed to business owners.
