Are Insurers Excluding AI Risks? What Companies Must Know Now

AI Risks: A Growing Concern for Insurers and Businesses

As artificial intelligence continues to gain traction within various industries, it has become increasingly apparent that traditional insurance policies may not suffice to cover the unique risks associated with it. Major insurance providers like AIG and W.R. Berkley are seeking regulatory approval to exclude AI-related liabilities from standard corporate policies. This significant shift comes as these insurers reevaluate the risks of a technology viewed as "unpredictable and opaque" by experts, igniting concerns about the impact on companies eager to harness AI’s potential.

The Dangers of AI Errors and Hallucinations

The unpredictable nature of generative AI poses profound challenges for insurers when calculating risk. For instance, W.R. Berkley has proposed barring claims involving AI use altogether, while Chubb’s policies could lead to exclusions in cases of widespread incidents resulting from single-model failures that could cascade into catastrophic losses. With high-profile examples such as a $25 million deepfake scam and a court ruling that forced Air Canada to cover a customer service chatbot's erroneous refunds, it's evident that the potential for AI errors—dubbed "hallucinations"—is raising concerns among insurers.

A Voice from the Industry: Insights from Experts

Paul Roetzer, founder of the Marketing AI Institute, shares a critical observation about the implications of these insurance exclusions. He highlights a growing blind spot among business leaders that, without adequate insurance coverage, companies might become hesitant to adopt AI altogether for fear of incurring significant liabilities. As an expert who spent 16 years working closely with insurance carriers, Roetzer believes that now is the time for business leaders to reassess their contracts and understand the scope of their coverage, especially when it comes to AI applications.

The Next Wave of AI: Autonomous Agents and Higher Risks

As the insurance industry pivots toward covering autonomous AI systems—known as "agentic" AI—businesses face an evolving landscape of liability. These systems can execute complex transactions and make decisions independently, raising the stakes for potential errors. The shortcomings of standard liability and errors & omissions policies become evident as the risks intensify. Companies must recognize that merely relying on existing coverage may leave them exposed in this rapidly evolving technological landscape.

Take Action: Insurance Review and Risk Management

In light of these changes, company leaders must act swiftly. Reviewing contracts and consulting with risk management is crucial, as many businesses operate under the misconception that their general liability policies suffice for AI operations. Understanding the nuances and evolving nature of AI risks will be imperative for safeguarding against liabilities that could arise. Organizations should engage in proactive discussions with their insurance providers, ensuring they are not left vulnerable as AI continues to evolve.