Claims Outlook 2026: trends, coverage fault lines, and emerging risks for brokers and underwriters

Liability Claims Under Pressure

Australian liability portfolios absorbed significant strain in 2025 from unrelenting claims inflation and a rise in litigation, particularly around psychiatric injury claims and worker-to-worker incidents. These trends accelerated costs beyond expectations, squeezing profitability for insurers and prompting a reevaluation of coverage scopes as 2026 approaches.

Globally, similar dynamics are at play in casualty lines. Social inflation—marked by expanding liability definitions, aggressive plaintiff litigation, and outsized jury awards—has driven severity higher, even as some property lines see rate softening. In the US, casualty sectors grapple with nuclear verdicts and venue-specific risks, contributing to combined ratios that remain vulnerable despite overall P&C stability.

A non-obvious tension lies in emerging contaminants like PFAS, which trigger product liability, environmental cleanup, and class-action exposures not always contemplated in legacy policies. These forever chemicals, found in everything from firefighting foam to consumer goods, create long-tail risks that could dwarf traditional claims if coverage disputes proliferate.

The stakes are concrete: inadequate adjustments risk amplified loss ratios, with reinsurance capacity pulling back on high-severity exposures. Insurers already face a global protection gap nearing US$183 billion, exacerbated by catastrophe losses—California wildfires alone cost an estimated $40 billion in 2025—and tariff-driven inflation in repair costs. For brokers and underwriters, inaction means eroded margins or coverage gaps that leave clients exposed, while over-correction could cede market share in a period of increased competition.

Trade-offs abound. A softening market tempts aggressive pricing to capture volume, yet unchecked social inflation and volatile catastrophes demand caution. Regulatory scrutiny adds another layer, with evolving standards on climate and cyber risks forcing more transparent risk assessments.