Why Cybersecurity in Insurance is Accelerating in 2025

The insurance industry can no longer hide behind its reputation as a slow mover. Cybersecurity and data protection are being reshaped at a pace insurers have never seen before.

In 2025, three forces are driving this acceleration:

• AI in underwriting and claims is creating efficiency, but it is also introducing unprecedented data risks.

• Third-party vendor ecosystems can multiply exposure across brokers, law firms, TPAs, and reinsurers.

• Legacy systems are blocking Zero Trust, which is leaving sensitive policyholder data vulnerable despite modernization efforts.

Regulators, boards, and customers are no longer patient. Insurance companies are now expected to secure sensitive data at the source, enforce stronger governance, and modernize security strategies.

This blog explores the three cybersecurity trends that will shape the insurance industry in 2025: the shift, the risk, and the reaction that every insurer must prepare for.

AI in Insurance Underwriting: Innovation Meets Data Protection Risk

The Shift

Insurance carriers are rapidly deploying AI in underwriting, fraud detection, and claims processing. What started as machine learning experiments has now scaled into AI-driven risk modeling, personalized coverage, customer service, and fraud prevention.

According to the 2025 State of AI Adoption in Insurance by Roots, these workflows have become core areas of AI investment. A Conning Survey further found that 77% of insurance C-suite leaders are in some stage of AI adoption, and 67% are piloting large language models (LLMs) for underwriting and claims.

However, AI runs on sensitive data, including PII, PHI, contracts, IP, and proprietary algorithms, with much of it entering AI pipelines without proper governance, encryption, or oversight.

At the same time, insurers aren’t only deploying AI internally. They’re also responsible for understanding and covering AI risk within their clients’ operations, multiplying both the complexity and the urgency of managing it.

The Risk

Without strong data controls, insurers risk:

• Model leakage, including sensitive data used in training or fine-tuning, can escape into the outputs.

• Regulatory scrutiny, such as noncompliance with NAIC, NIST, or GLBA rules around sensitive data.

• Reputational damage, which means loss of client trust if AI mishandles or exposes data.

The Reaction

AI is now a board-level priority. Regulators, including NAIC, NIST, and state agencies, are issuing new requirements such as the NAIC Model Bulletin, which pushes for governance frameworks, model validation, and third-party oversight.

Forward-looking carriers are going beyond policy and process to adopt persistent encryption, selective access controls, explainability mechanisms, and auditability. These measures enable insurers to innovate with AI while maintaining compliance, safeguarding sensitive data, and protecting long-term trust.

Third-Party Vendor Risk in Insurance: The Industry’s Blind Spot

The shift

The insurance industry operates within complex ecosystems — comprising brokers, adjusters, reinsurers, TPAs, and an equally intricate web of technology vendors. These partnerships keep the business moving, but they also create a growing problem of third- and fourth-party cyber risk.

Insurers can no longer operate as isolated fortresses. Sensitive data, including policyholder PII, claims files, and contracts, now flows constantly across external partners, often outside direct IT control. Every new connection multiplies exposure.

The Risk

Each handoff introduces risk:

• Unsecured file sharing, such as policyholder data sent via email or inputted into non-compliant platforms.

• Misconfigurations, which could include weak security practices by a vendor, could expose critical data.

• Ransomware and breaches where attackers are exploiting weak links in the chain.

This isn’t theoretical. According to Resilience, third-party incidents accounted for 31% of all cyber insurance claims in 2024 and nearly 23% of incurred losses. Similarly, a SecurityScorecard study of 150 insurance companies found that 59% of reported breaches involved third-party vectors.

As AI adoption accelerates and vendor ecosystems expand, these risks will only grow more complex and harder to manage. The consequences are severe: financial penalties, regulatory action, lawsuits, and reputational damage that insurers can’t easily repair.

The Reaction

Regulators are tightening the screws. NYDFS, NAIC, and state agencies now expect insurers to audit partners, document vendor controls, and prove that third parties can safeguard client data as rigorously as the insurers themselves.

In response, carriers are turning to data protection that travels with the file, which includes encryption, identity-based access, and audit trails that persist even after data leaves the organization. This shift allows insurers to maintain custody and compliance without relying solely on vendor promises.

Zero Trust in Insurance: Legacy Systems Are Holding Back Data Protection

The Shift

The insurance industry has been slower than others to modernize IT and cybersecurity, but high-profile breaches, including the UnitedHealth Change Healthcare attack, which exposed data from nearly 190 million people, have accelerated urgency. Insurers are now adopting Zero Trust strategies, moving beyond perimeter defense to focus on continuously validating users, devices, and data flows.

But appetite doesn’t equal readiness. Insurers operate across highly complex environments: mainframes, on-prem servers, shared drives, SaaS, and cloud platforms. Layered across decades of technical debt, these fragmented systems make it extremely difficult to implement a unified Zero Trust model.

The Risk

Zero Trust is only as strong as its weakest link. For insurers, the risk lies in inconsistent data protection across legacy stacks:

• Sensitive policyholder data is spread across outdated systems.

• Inconsistent encryption and labeling are undermining Zero Trust enforcement.

• Lateral movement opportunities for attackers across poorly segmented infrastructure.

Without a unified, data-centric approach, privileged access and sensitive files can slip past even the most advanced perimeter tools. This is compounded by the fact that 59% of insurance-sector breaches involve third-party vectors (more than double the global average), showing how attackers exploit weak links outside the core perimeter.

The Reaction

Zero Trust is no longer a buzzword; it’s a business mandate. Regulators, cyber insurers, and boards are pushing firms to modernize controls, pay down legacy debt, and enforce protection at the data layer.

And adoption is scaling quickly. The global Zero Trust market, valued at $31.6 billion in 2023, is projected to reach $133 billion by 2032. By 2025, an estimated 60% of companies are expected to adopt Zero Trust security over VPNs.

Leading carriers are moving to:

• File-level encryption and dynamic access controls that persist across legacy and modern systems.

• Unified governance frameworks that treat data consistently, regardless of where it lives.

• Auditability and policy enforcement that satisfy regulators and reduce cyber insurance premiums.

By extending Zero Trust principles directly to sensitive data itself, insurers can accelerate modernization, contain breaches faster, and adopt AI with greater confidence.

Conclusion: Governing Cyber Risk at the Data Layer

For insurers, the cybersecurity challenge in 2025 isn’t just about new tools or frameworks — it’s about control at the data layer.

• AI adoption is reshaping underwriting and claims, butit exposes sensitive data without proper governance.

• Third-party ecosystems multiply exposure every time policyholder data changes hands.

• Zero Trust ambitions collapse if legacy systems and fragmented controls leave gaps that attackers can exploit.

Hope is not a strategy. Insurers who succeed will be those that enforce persistent data protection, unify governance across legacy and modern systems, and build AI-ready security models regulators can trust.

The winners will treat cybersecurity not as a compliance box to check, but as the foundation of customer trust, regulatory resilience, and future competitiveness.

FAQ: Insurance Cybersecurity Trends 2025

Q1: What are the biggest cybersecurity risks for insurers in 2025?

A: The top risks are AI-driven data exposure, third-party/vendor breaches, and legacy systems undermining Zero Trust adoption. Together, these create systemic vulnerabilities that regulators are watching closely.

Q2: Why is third-party risk such a concern in insurance?

A: Insurers rely on vast ecosystems of brokers, TPAs, reinsurers, and law firms. Studies show 59% of breaches in the insurance sector involve third-party vectors — more than double the global average.

Q3: How does Zero Trust apply to insurance cybersecurity?

A: Zero Trust requires continuous verification of users, systems, and data flows. For insurers, this means implementing file-level encryption, identity-based access, and persistent controls that work across both legacy systems and modern cloud environments.

Q4: How are regulators shaping insurance cybersecurity in 2025?

A: Agencies like NAIC, NYDFS, and NIST are raising expectations around AI governance, vendor oversight, and Zero Trust controls. Compliance is no longer optional - it’s a board-level issue with real financial consequences.

Q5: What should insurers prioritize today?

A: The priority is enforcing data-centric security: encryption that travels with files, governance frameworks that span ecosystems, and controls that enable safe AI adoption without regulatory risk.