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The insurance industry isn’t prepared for climate-driven risks despite natural disasters growing more frequent, severe and costly, according to a recent study by ZestyAI.

Sixty-one percent of insurance executives say the industry is not adapting to climate-related risk fast enough, the data showed, with many insurers continuing to lean heavily on legacy actuarial and stochastic models, even though these frameworks were designed for a more stable risk environment and do not capture today’s clustered, compound and property-specific loss patterns.

“The industry is still modeling risk as if little has changed, even as climate volatility accelerates,” said Attila Toth, founder and CEO of ZestyAI.

“Relying on yesterday’s tools is leaving insurers exposed to today’s billion-dollar events, from urban wildfires to catastrophic hailstorms,” he added. “AI-driven, property-specific models don’t just predict risk more accurately; they also show how mitigation changes outcomes, giving insurers, regulators and policyholders the transparency they need to build resilience.”

What can AI do to help?

  • Sixty-eight percent of executives say advanced AI models help manage climate-related losses more effectively
  • Nearly three quarters of executives say AI is opening new revenue opportunities, and improving underwriting
  • Yet only one in four cite AI as a primary method for managing perils, and a number of carriers report having no model at all: 15% for non-weather water, 14% for attritional fire, and 12% for wildfire and severe convective storms.
  • Despite 83% of leaders saying they feel equipped to use it, AI adoption remains uneven - only 40% of carriers have embedded AI into core workflows.

Meanwhile, the U.S. AI in insurance market is valued at roughly $3.15 billion in 2025 and is projected to reach $21.23 billion by 2033, according to data compiled by S&S Insider.

The sector’s rapid growth is attributed to increasing adoption of AI technologies across insurance operations, including claims processing, fraud detection, customer service and risk management, as insurers seek to enhance efficiency, reduce operational costs, and improve customer experience.

“As we look to 2026, the industry faces a choice,” said Toth. “Continue relying on models built for yesterday’s risks, or embrace a future where every property can be understood, priced and protected on its own terms.”

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