AI is one of the hottest topics among business leaders across every industry. In the media, at conferences, and around the boardroom table, AI continues to dominate the discussion. It’s not surprising that a McKinsey survey found 92 percent of organizations plan to increase their AI investments over the next three years.
Yet, amidst all the conversation, one subject is noticeably absent: How AI could create exposures for businesses and whether insurance can protect against them.
Where AI Could Lead to Exposures
Many businesses are still in the early stages of determining how to leverage the power of generative AI within their operations. Some have formed internal AI committees and councils to evaluate this new technology and determine how to move forward. However, in our experience with business leaders in many industries, few companies are considering how their use of AI could open them to a financial loss or liability claim.
Since the term “AI” covers a broad range of activities, it’s not a single exposure. And since generative AI is still evolving, it is rife with unknowns. Yet, it’s becoming clear that an organization could use AI in a way that unintentionally causes harm to others, and that AI could be used against the business in a way that causes financial losses or creates liability risk.
Consider these possibilities:
- A company uses AI-enabled tools to design its latest product. But the design has flaws that lead to user injury, fueling product liability lawsuits.
- A business uses an AI-powered solution to screen job applicants, speeding the hiring process and reducing HR costs. But the AI algorithms introduce biases that favor certain races or genders, sparking employment discrimination lawsuits.
- Hackers use AI to circumvent a company’s cybersecurity measures and gain access to its proprietary and confidential information.
- A cybercriminal uses AI to create a deepfake of the business’s bank login page and sends an accounting staff member an email directing them to log in. Every indication says this is a legitimate webpage, but it isn’t. Now, hackers have access to the company’s financial accounts.
- A company uses AI to enter and synthesize data it then sells to subscribers. But the tool makes errors, leading to an inaccurate product and exposing the company to an errors and omissions or wrongful act claim.
- An employee uses AI to create content for the company website and doesn’t realize the resulting material infringes on a copyright or exposes the organization to false advertising claims.
What’s the Solution?
Incidents like these are entirely feasible, likely already happening, and just the tip of the iceberg. Whether your business is using AI-enabled tools today, or evaluating how to implement them in the future, it’s critical to consider whether you’re at risk of financial losses or third-party claims.
One of the most common ways to address risk is to transfer it by purchasing insurance. Yet, it’s not as simple as buying an “AI policy.” In fact, such policies don’t exist for the most part.
One of the few AI-related insurance coverages (as of this writing) is an endorsement offered by Coalition, which broadens the definitions of Security Failure and Data Breach to include events involving artificial intelligence. Coalition includes this endorsement on all its US Surplus Lines policies at no additional cost. Other carriers like CFC, At-Bay, Great American, AXA XL, Ascot, and AIG will be jumping on board this year with similar endorsements.
However, these endorsements only address cybersecurity-related incidents that involve AI. As the previous examples illustrate, this evolving technology could open businesses to a much wider range of exposures—involving general liability, errors and omissions, directors and officers, and much more.
Despite the risk potential, many insurers have been relatively quiet on the subject of AI exposure. Most commercial insurance policies don’t expressly cover or exclude AI-related events. It remains a grey area, but not without precedent.
Prior to 2020, the idea of an infectious disease shutting down companies and triggering financial losses wasn’t a thought for most business owners or insurers. Now, infectious disease is excluded from most policies, including event cancellation coverage. Biometrics followed the same path: In the past, few policies excluded retinal scan, fingerprint, and other biometric technology. Today, it’s excluded on virtually all insurance policies. Excluding AI exposures, or requiring specific AI endorsements, is a natural progression.
What complicates the issue is that many businesses haven’t developed specific policies on AI use. In many organizations, employees use ChatGPT, Microsoft Copilot, and other AI-powered tools without guidance on what is permissible, without guardrails to reduce risk, and often without leadership’s knowledge. It happens throughout companies every day, and it could be creating costly exposures.
Best Practices for Addressing AI Risk
There are still many unknowns with AI, and insurance companies tend to avoid the unknown. So it may take some time until AI is addressed across all types of commercial insurance policies. Even in the absence of AI insurance solutions, it’s essential for every organization to take a thoughtful approach to implementing AI and consider whether it could introduce risk.
At a minimum, we recommend that business leaders implement the following best practices:
- Update your procedures and policies. Consider how you’re implementing AI today and how you plan to deploy it in the future. Then develop policies that guide employees on permissible, ethical use.
- Talk with your clients/customers and vendors. It’s vital to understand whether they use AI in their operations and how their actions could expose your organization to risk.
- Consult with your independent insurance advisor. The more your broker knows about your current AI use and future plans, the better they can advise you on how to mitigate risk and address exposures. (That’s true for any business activity, not just AI.) Your advisor can recommend loss prevention best practices and keep you informed as AI-related insurance options emerge and evolve.
If your business is using AI or preparing to implement it in the future, schedule a call with a B. F. Saul commercial insurance specialist to discuss your risks and how to mitigate them.
Jennifer Neal is a Vice President and Account Executive in B. F. Saul Insurance’s Commercial Lines practice. With over two decades of experience in the industry, Jennifer oversees and manages the commercial book of business and assists with agency policies and procedures. She has spent most of her career balancing the producer and account executive roles, working in commercial lines, employee benefits, and personal lines.