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Top four risk areas shaping the financial institutions claims landscape

Evolving trends in AI, ESG, interest rates, digital asset economy and regulatory landscape are contributing to the steady rise in financial institutions claims in recent years.

13/03/2025 · 10 minute read

Financial institutions are operating in a dynamic and competitive environment, facing global economic and political uncertainty and rapid technological advancements. As customer expectations continue to evolve and regulatory frameworks change, there is heightened scrutiny on the industry across various jurisdictions. According to Marsh’s claims data, there has been a steady rise in the number of claims and notifications made by financial institutions in recent years, across the key insurance lines of professional indemnity/errors and omissions, directors and officers liability, crime and employment practices liability. As such, it is critical for Australian financial institutions to prioritise risk management to help minimise claims.

In this article, we explore the top four risk areas impacting claims activities that financial institutions should stay on top of, particularly in times of economic uncertainty in an ever-evolving digital environment.

1. Artificial Intelligence (AI)

Although the use of AI in the financial services sector is not new, recent developments in generative AI have the potential to significantly impact how financial institutions interact with customers and manage internal risks. From an advisory perspective, future claims may arise from how financial institutions market and disclose their use of AI, including generative AI, in asset allocation, portfolio management and investment selection services.

Additionally, the use of generative AI by criminals against financial institutions is expected to increase, with deepfake imposter scams driving a new wave of fraudulent activities. Financial institutions must remain vigilant and enhance their fraud detection and prevention systems to mitigate these emerging threats.

2. Interest rate levels

After a period of rapid interest rates increases to combat global inflationary pressure, rates have generally stabilised and are expected to decrease throughout 2025. However, financial institutions may still face latent risks related to interest rates, potentially leading to increased litigation. Businesses facing stretched balance sheets may be more inclined to pursue litigation as a revenue stream. The availability of third-party litigation funding could further drive such claims.

Errors and omissions claims were the most common type of claims reported by financial institutions in 2023. Losses were due to a variety of causes including breach of contract, breach of regulation, breach of fiduciary duty, improper business practice and mis-selling. Financial institutions should anticipate potential claims from customers alleging negligent investment advice and financial product mis-selling, particularly regarding finance products tied to the Reserve Bank of Australia’s base rates.

3. Digital asset economy and regulatory scrutiny

The landscape for future regulatory intervention and claims activity is becoming more defined. Financial institutions operating in the crypto sector should expect heightened public scrutiny, regulatory investigations, and enforcement actions, potentially leading to increased litigation from customers and clients. Equally, clearer regulatory guidance is welcomed by the industry and its stakeholders, and may ultimately lead to a safer consumer environment, market integrity and reduce risk.

Tighter regulation in the digital asset economy is anticipated to continue into 2025.  In Europe, the Markets in Crypto-Assets Regulation (MiCA) came into full effect on 30 December 2024. Alongside further regulation, crypto-related litigation — particularly in the US and UK – is also increasing, including cases related to crypto asset fraud recovery and whether crypto assets qualify as securities.

Locally, the Australian government is committed to enhancing the governance of the crypto sector and protecting consumers and investors through a range of proposed regulatory reforms. These include a proposed framework for regulating digital asset platforms and regulating payments services providers. The Australian Securities and Investments Commission (ASIC) aims to find the right balance among the key principles of consumer protection, market integrity and encouraging financial innovation.

The Australian government aims to classify many crypto assets as financial products and has proposed that any business dealing with cryptocurrencies will be required to hold an Australian Financial Services License (AFSL) potentially from 2025. This may have a significant impact on smaller or less sophisticated businesses who will likely be exposed to greater regulatory scrutiny and therefore compliance cost, while larger financial institutions operating in the crypto space will likely be under increased pressure to ensure their AFSL licensing extends to capture these activities. This also poses an opportunity for those businesses who already uphold significant value in regulation to enhance their internal governance and find success through this change.

With increased regulatory and public scrutiny, professional indemnity insurance will likely play a more critical role within the digital asset and cryptocurrency space.

4. The ‘E’ in ESG – Environmental

While macro political and economic factors may have started to reframe the wider ESG debate, the ‘E’ in ESG remains highly relevant to financial institutions in 2025, as regulators in Australia, New Zealand, Europe and the US increase their supervision of firms in the ESG space.

The rise of ethical investing has resulted in significant capital inflows into the sector, but also attracted increased regulatory scrutiny. Regulators are also focusing on the quality of industry benchmarks used to rate the ESG aspects of companies. Financial institutions that lend to and invest in the non-renewable energy sector may face challenges from activist claimants seeking to change company behaviour. Ongoing political developments and uncertainties, such as the US elections, may influence the level of environmental-themed litigation against financial institutions.

Additionally, Australia now has mandatory climate change reporting obligations, which could potentially be a source of disclosure related claims for financial institutions. Similarly, New Zealand organisations have been subject to climate reporting obligations for some time.

Learn more

If you have any questions or would like to learn more about how these key risk areas and industry trends may be impacting your business, as well as how we can support you in managing and mitigating your risks, please reach out to your Marsh representative.

Our people

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Richard Garside

Head of Financial and Professional Services, Pacific

  • Australia

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Louise Clarke

Growth Leader, Financial and Professional Services, Pacific

  • Australia

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This publication is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. The information contained herein is based on sources we believe reliable, but we make no representation or warranty as to its accuracy. Marsh shall have no obligation to update this publication and shall have no liability to you or any other party arising out of this publication or any matter contained herein. Any statements concerning actuarial, tax, accounting, or legal matters are based solely on our experience as insurance brokers and risk consultants and are not to be relied upon as actuarial, accounting, tax, or legal advice, for which you should consult your own professional advisors. Any modelling, analytics, or projections are subject to inherent uncertainty, and any analysis could be materially affected if any underlying assumptions, conditions, information, or factors are inaccurate or incomplete or should change. Page Compliance ID