August 23, 2025 — For years, financial pressures—rising costs, revenue sustainability, and economic volatility—dominated risk conversations across industries, including law. But 2025 has ushered in a dramatic upheaval in the legal sector’s risk landscape, according to the newly released 2025 Legal Industry Risk Index by Embroker 14. Reputational challenges and employment-related claims have now tied as the top internal risks, each cited by 47% of legal professionals, displacing financial concerns that held the top spot in previous years 112.
The Great Reordering: From Survival to Strategy
The shift reflects an industry that has stabilized economically and is now focusing on complex operational risks. In 2023, 58% of legal professionals ranked “trouble with rising cost of business” as their primary internal risk. Today, that figure has plummeted, replaced by reputational vulnerabilities (e.g., public controversies, client disputes, and social media crises) and employment claims (e.g., harassment, wrongful termination, and discrimination) 14. This reordering signals a move from survival-mode financial planning to strategic risk management aimed at long-term sustainability and growth.
AI Adoption Explodes—Introducing New Vulnerabilities
The legal profession’s embrace of artificial intelligence has been meteoric, with adoption surging from 22% in 2024 to 80% in 2025 112. While AI enhances efficiency in client services and automation, it also introduces novel reputational risks. AI-related malpractice—such as over-reliance on generative tools or undisclosed AI use—can trigger “social inflation,” where public scrutiny and litigation costs balloon beyond traditional malpractice claims 4. Notably, 43% of legal professionals identify “over-reliance leading to professional liability risks” as their top AI concern, intertwining technology with reputation management 4.
Economic Stability Enables Strategic Pivots
The decline of financial pressures as the foremost risk suggests the legal industry has achieved a level of economic resilience. Inflation concerns, which worried 52% of legal professionals in prior surveys, dropped to 28% in 2024 1. This stability allows firms to focus on higher-stakes strategic challenges, such as safeguarding their reputation in an era of instant news cycles and online reviews, and fostering workplace cultures that mitigate employment disputes 13.
Insurance Becomes a Strategic Asset
In response to these shifts, 45% of legal professionals are upgrading their insurance coverage—a staggering jump from 14% in 2024 14. This isn’t panic buying; it’s proactive risk mitigation. Cybersecurity breaches, AI-related liabilities, and reputational fallout are driving firms to seek comprehensive policies that go beyond traditional coverage 46. Notably, 77% of legal professionals now express confidence that their insurance policies address their greatest business risks 1.
Navigating the New Risk Hierarchy
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Reputational Risks: Firms face constant vulnerability from social media, client reviews, and public controversies. Proactive strategies—including digital monitoring, communication plans, and alignment of client values—are critical 14.
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Employment Practices: Robust policies, training, and cultural assessments are essential to prevent claims and foster inclusive workplaces 38.
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AI Governance: Clear guidelines for AI use, transparency with clients, and investment in oversight processes can mitigate malpractice and reputational harm 410.
The Bottom Line
The legal industry’s risk transformation reveals a profession maturing beyond financial survival. Firms that treat reputation and employment management as strategic imperatives—not peripheral issues—will thrive in an increasingly complex landscape. As Mike McLean of Embroker notes, “Legal professionals are increasingly viewing risk through an opportunistic lens, with 37% now seeing risk as a pathway to growth—more than double the 18% who held this view just one year prior” 1.
For deeper insights, download the full 2025 Legal Industry Risk Index Report 112.
Sources: Embroker 2025 Legal Industry Risk Index, Bloomberg Law 2025 Trends, Thomson Reuters Practical Law, RiskMap 2025