Top Compliance Issues for Insurance Industry in 2026

Across the board, the insurance industry will face structural upheaval in 2026, predicts attorney Karen C. Yotis, content manager for insurance on the Practical Guidance team for LexisNexis®.

Just like in early 2025, we asked Yotis, a frequent contributor to the State Net® Capitol Journal™, to outline for us what she believes will be the top compliance issues for the insurance industry this year.

She believes we’re in for a lot of change in 2026, with artificial intelligence playing a role in much of it.

“AI is the octopus with tentacles in everything,” she said.

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Climate Change and Cyber Coverage

While we’ve written before about the impact of climate change on property insurance, Yotis said concern about the environment has now spread within the industry to numerous other coverage areas, with insurers updating their models across lines of business to reflect what’s perceived to be greater or changing risk today.

Indeed, because of climate change, she said insurance companies are tightening up their definitions, exclusions and endorsements—and these adjustments affect policies you might not immediately associate with the environment.

That includes separate, standalone policies covering cyber risk.

For a long while, Yotis said, commercial general liability policies were considered enough to cover claims related to server outages or data breaches. But she said insurance companies have begun to realize that CGL policies weren’t designed for such complex, and often consequential, concerns.

This has led to the introduction of new, specific cyber policies that insure not only a company’s website and servers but also the algorithms that underlie automated AI tools they may use internally.

Yotis said the birth of cyber coverage is akin to the advent of once unimaginable pet insurance and cannabis-industry insurance policies, both of which are becoming increasingly mainstream.

“There’s a need for these industries to cover these new lines and risks,” she said. “Cyber used to be a niche risk. But it’s not anymore. It’s systemic.”

Risk Models and Reinsurance

Yotis also noted that underwriting cyber insurance can be challenging.

While storms are of course unpredictable, we have a wealth of historical weather data that allow insurance companies to model the risk of hail damage to a home in Idaho. Insurers don’t have the same resources for modeling cyber risk.

At the same time, Yotis said the very foundation of the insurance ecosystem, reinsurance, can undercut new products like cyber insurance.

Reinsurance, which Yotis said can be most easily understood as insurance for insurance companies, is becoming a bigger and bigger factor in insurance industry dynamics.

With risk profiles shifting across multiple aspects of society and playing havoc with once tried-and-true models, the market for reinsurance is looking more and more like the market for primary insurance: volatile.

But while volatility in the primary market can affect the price and extent of coverage in established lines of business, tension in the reinsurance market can also restrict the introduction of new insurance products to the businesses and consumers.

That could be a problem when innovation may be required to ride the waves of the industry’s turbulent seas.

Fragmented Regulations and Managing Exposure

Another problem insurers are complaining more about these days, Yotis said, is the fragmented nature of the American insurance market.

States historically have been the chief regulators of insurance in our country. But with globalization, Yotis said, the business of insurance companies has expanded beyond, say, a handful of states in the Northeast to multiple countries.

Today, she said, insurers are clamoring for consistency across jurisdictions—both nationally and internationally—to make their compliance obligations more consistent and lower their compliance burden.

This is especially important with the industry’s embrace of AI, which Yotis said is being used to help transform claims management.

We’ve reported on insurance companies’ use of AI to process claims and make decisions, but Yotis offered greater insight into the extent to which they employ it. She said companies use the technology to analyze massive databases and pinpoint claims most likely to sue or identify minor claims that could turn into big problems later if action isn’t taken now.

In other words, insurers are becoming more sophisticated at managing their own exposure—and it doesn’t end with claims. Yotis said companies have also begun closely monitoring the outcomes of litigation to refine their policy provisions and manage future liabilities.

Driving this behavior, she said, is concern over nuclear verdicts and the growing belief that litigation is an opportunity to profit, not just redress a wrong.

“Unfortunately, it’s often dirty business,” she said.

Foundational Shifts on Horizon

Other things Yotis expects to see in 2026:

• Continuing pressure on insurance companies to align their corporate environmental, social, and governance, or ESG, commitments with their underwriting and investments;

• Regulators pushing for insurance companies to be as non-restrictive with mental health and substance abuse disorders as they are with medical and surgical procedures; and

• Greater attention being paid to long-term care insurance with the nation’s aging population.

Yotis believes this multitude of issues represents a shift in the foundations of the insurance industry, with changes on the horizon.

“The future of insurance won’t be defined by better models alone, but by how well the industry navigates the convergence of risk, regulation and litigation,” she said. “That convergence is no longer emerging. It’s already here.”

—By SNCJ Correspondent BRIAN JOSEPH

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