Law firm Kennedys has published a report into the key challenges facing the global insurance market during the year ahead and has highlighted a host of fast changing factors – including AI and biodiversity loss – as issues insurers will increasingly have to tackle.

The firm’s Global forecast 2024: Evolving insurance risks report says environmental, social and governance, developing technologies, geopolitics and claims inflation all remain top concerns for the sector. It adds that the risks examined in previous reports within these themes – such as supply chain disruption, climate change and cyber breaches – are all still firmly in place, but alongside these, the risks have evolved and diversified.

The report says that while the impact of AI may vary across the insurance value chain, access to more and better quality data translates to improved risk assessment for underwriting, allowing customised pricing and coverage. AI can also help manage the claims process, allowing insurers to pay claims more quickly.

However, AI risks are significant and fall into three categories: failure of the AI – both human failure and technology failure, malicious use of AI by third parties, and issues with data. The report warns that a particular challenge of evolving AI capabilities is that the potential for AI harms do not neatly fit into existing insurance lines.

Potential claims could arise out of the performance of AI in an unexpected manner, such as deepfake fraud, a cleaning robot causing a flood or fire, a self-driving car that kills a pedestrian because its machine learning system fails to account for jaywalking, or a smart conversational bot that goes awry, damaging a business’s brand.

On geopolitics, factors such as the impact of the global pandemic, natural disasters and rising territorial tensions have disrupted trade and global supply chains, supporting a shift towards a new ‘deglobalisation era’, according to the report.

In terms of ESG, there is growing recognition of the economic impact of biodiversity loss and ecosystem degradation, coupled with the reputational risks organisations face by non-compliance with ESG practices. It says greenwashing is also likely to be one of the biggest sources of class action claims in the coming months and years.

Kennedy said its partners from different parts of the world have identified different priorities. In the UK, the shifting regulatory landscape was the biggest concern, as it adapts to the pace of change in data privacy, AI, cyber, climate change, sustainability, geopolitical tensions, trade relationships, diversity, equality and inclusion and more.

John Bruce, a partner at Kennedys, said: “The global risk environment in which the insurance sector operates has always reacted and adapted to new and emerging risks. What is evident from our report is that the pace of change is quickening. This is true of risks falling under all key themes – ESG, geopolitics and technology. It demands commercial agility and forensic planning.”