Australian insurers lag global peers as AI & cyber risks surge

Australian insurers' preparedness to handle major risks has fallen to its lowest point in four years, according to new research. The data shows Australian firms are now 6.6% behind their global counterparts, with the gap the widest it has been in years. Insurers are contending with the accelerating impact of artificial intelligence (AI), cyber threats, and increased regulatory scrutiny.

Preparedness concerns

The study shows local insurers have lost ground on the Preparedness Index, a measure of confidence in managing risk. This comes as the sector navigates challenges from cybercrime, technology changes, AI disruption and climate events. The survey also reported a 6% drop in perception of risk, which analysts say may indicate adaptation or risk fatigue among Australian companies.

Cybercrime remains the top risk facing the industry. However, technology risk is now ranked second, while AI has vaulted from eleventh place to third among key concerns. This rapid rise puts emerging technologies at the centre of the sector's risk management agenda.

Artificial intelligence impact

Insurers' concerns about AI have jumped sharply since 2023. Two years ago, AI was not considered a major worry, but is now rated as the third most critical risk. The sector's preparedness for these new challenges has not kept pace with global improvements, according to the findings.

"Risks related to cyber, technology and AI are accelerating at a speed we haven't seen before in the insurance industry. This is creating a preparedness gap that didn't exist two years ago, and we are seeing that Australian insurers are feeling less prepared to manage these challenges compared to their global peers," said Antonie Jagga, Insurance Leader, PwC Australia.

Jagga emphasised the importance of investing in technology skills, particularly in underwriting, pricing, and claims assessment, as core areas affected by AI advances. He noted that updating legacy technology platforms and enhancing cyber resilience can help insurers improve efficiency and responsiveness.

"Getting technology risk right is a growth strategy, not just a defensive play. Modernising legacy systems and building resilient data and cyber systems enables faster quotes for customers, sharper risk ratings and streamlined processing across underwriting and claims. What is important is that across this work humans remain at the helm, and the systems are continuously monitored as the technology evolves," said Jagga.

He added that building these capabilities can help insurers operate more efficiently and manage risks more effectively for the benefit of customers.

Political pressures

Political risk has risen to become the fourth most pressing issue for Australian insurers, climbing from eighth position two years ago. The sector faces ongoing scrutiny from government and regulators, particularly as premiums rise and coverage is restricted in areas prone to natural disasters such as floods and cyclones. Heightened geopolitical tensions have also contributed to the jump.

Jagga warned that affordability will continue to be a challenge. As risks rise and premiums follow, there could be a negative impact on Australian households, especially those in high-risk zones.

"Affordability remains the defining theme going into 2026, and we've seen that translate into elevated political risk. Insurers need to demonstrate they're using technology not just to manage their own risks, but to make cover more accessible and affordable for Australians, particularly in high-risk areas," said Jagga.

He said that using AI and advanced risk data can help insurers align pricing more closely with true exposure, rather than relying solely on traditional rating methods. This approach could keep essential cover within reach for more households and reduce the risk of underinsurance.

Shifting priorities

The research found that climate change, which had previously ranked higher, has now slipped to tenth on the list of insurer concerns in Australia. Reputation risk and the suitability of regulations also featured in the top ten. Globally, insurers ranked cybercrime top, followed by AI and technology risk. Macroeconomics and regulatory change round out the global top five risks.

"Affordability improves when pricing is smarter. Insurers can better align premiums to actual exposure rather than traditional methods, by using AI and richer risk data. Done well, this reduces underinsurance, keeps essential protections within reach in high-risk areas, and delivers better outcomes when Australians need to make a claim," said Jagga.