The 2025-2026 risk agenda for insurers

The insurance regulatory and risk landscape was demanding in 2025 — and all signs point to 2026 being even more complex. Across all lines of insurance, insurers are being pulled in two directions at once:

• Innovate faster, and
• Tighten controls and costs under intensifying regulatory, geopolitical and economic pressure.

Risk and compliance functions are expected to be jointly strategic — supporting profitable growth, enabling technological innovation and satisfying increasingly aggressive regulation.

1. Technological innovation

By mid‑2025, artificial intelligence moved from pilot projects to core insurance operations. Insurers accelerated the shift from annual pricing cycles to dynamic, data-driven pricing and risk selection, with AI agents making or supporting decisions at scale. That created real opportunities, as well as real exposures:

• Model risk: Underwriting and pricing models must be robust, explainable and monitored for drift.
• Fairness and anti-discrimination: Insurance regulators, plaintiff’s counsel and consumer advocates increasingly scrutinize AI-driven decisions.
• Governance: As more authority is delegated to AI agents, boards and senior management are expected to demonstrate active oversight of models, data sources, and outcomes.

In 2025, insurance regulators view cyber resilience, incident reporting and data protection as central to insurers’ safety and soundness. Insurers are encouraged to embed cyber risk into enterprise risk management and capital planning. It is key to align IT/security priorities with business growth, especially when deploying third-party integrations. The tension is clear: Digital transformation demands speed; cyber and AI governance demand discipline. Insurers that can balance both will have a competitive advantage.

2. Third-party vendor regulation

Insurance regulators consider third-party vendors as extensions of an insurer’s own risk profile. In 2025, the National Association of Insurance Commissioners increased its focus on pharmacy benefit managers, data/model vendors and third-party administrators — and 2026 will build on this foundation.

The NAIC moved from simply studying PBMs to actively building a regulatory and enforcement framework, splitting responsibilities across two working groups: (1) the Prescription Drug Coverage (B) Working Group focusing on licensure and registration guidelines and monitoring the pharmaceutical supply chain; and (2) the 2025 formed Pharmacy Benefit Management (D) Working Group, developing a new chapter in the NAIC Market Regulation Handbook for PBM examinations and designing data collection protocols. For health and life insurers partnering with PBMs, this means greater scrutiny of contracts, rebate arrangements, and oversight.

Beyond PBMs, the NAIC is scrutinizing third parties that touch core insurance operations.

• Third-Party Data and Models (H) Working Group
  • Developing a framework to oversee insurer use of third-party data, analytics and predictive models.
  • Ensuring compliance with consumer protection and anti-discrimination laws.
• Annuity suitability oversight
  • In August, the Annuity Suitability (A) Working Group issued guidance requiring insurers to actively monitor third-party supervising entities (e.g., broker-dealers) for suitability compliance.
  • Insurance regulators are no longer accepting the defense that “We outsourced it.”
• Third-party administrators
  • NAIC continues to refine standardized licensing terms.
  • States are updating oversight for contractors supporting analysis and examination functions.

In practical terms, insurers need to treat vendor governance like capital management: structured, evidence-based and continuously updated.

3. Interest rates, markets and geopolitics

Interest rate and spread volatility did not ease in 2025, and insurers had to confront its impact on:

• Solvency, capital and hedging strategies.
• Policyholder behavior, including lapses, surrenders and product migration.
• Reinsurance and risk transfer, use of offshore and alternative reinsurance for capital relief and earnings smoothing is under closer regulatory scrutiny, including transparency, counterparty risk and whether risk transfer is substantive.

Insurers are expected to consider and mitigate “geopolitical, economic and societal uncertainty,” not just traditional insurance risk. For example, in 2025, catastrophic losses stayed elevated, with total insured natural catastrophe losses around $107 billion. This was driven in part by events such as the California Palisades Fire. As a result, property/casualty insurers continue to face pressure on catastrophic aggregates, reinsurance costs and pricing adequacy.

Medicare Advantage insurers grappled with premium deficiency, as premiums often fell short of rising medical costs. This forced health insurers to revisit product design, benefit richness, network strategies and risk adjustment while navigating heightened federal scrutiny.

Finally, attractive spreads on long-duration assets are improving life insurer profitability and solvency metrics. However, legacy guarantees (e.g., old variable annuities, long-term guarantees) can still be problematic depending on when they were priced.

4. Talent gap

In 2025, insurers experienced an active talent and expertise shortfall. Multiple sources project hundreds of thousands of positions vacated by retirements with too few qualified replacements coming in, particularly in technical and judgment-heavy roles. Under-attraction of younger talent also poses a challenge, given the perception of insurance as boring or low innovation. This makes insurance than other financial services to younger talent.

What this means for insurers in 2026

Across all these themes, a few imperatives stand out.

• Elevate risk and compliance into strategy. Risk functions must be embedded up front in product design, distribution strategy, capital planning and AI deployment—not consulted after the fact.
• Industrialize vendor and model governance. From PBMs to AI vendors, regulators expect structured oversight, data-driven monitoring and clear documentation.
• Invest in talent and tools. Insurers need professionals who understand both risk and technology.
• Design for volatility. Interest rates, cat losses, policy shifts and political change are now baseline conditions, not exceptions. The winners will build flexibility into pricing, capital and product architecture.

For insurers and reinsurers alike, 2025 was a stress test. In 2026, the real question is: Can your risk and compliance capabilities keep pace with your growth and innovation?

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Paige Waters is partner at Troutman Pepper Locke law firm. Contact her at [email protected].