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Artificial intelligence and insurance are deeply intertwined, each influencing the other in many ways.

On one hand, AI has transformed the insurance industry through automation, predictive analytics, fraud detection, and personalized customer service. Insurers now leverage machine learning models to assess risks more accurately, speed up claims processing, and offer tailored policies. Chatbots handle customer inquiries, computer vision assists in damage assessments, and AI-driven underwriting enhances decision-making.

On the other hand, AI-driven businesses themselves face unique risks that require specialized insurance coverage. Companies developing AI models, offering AI-driven services, or integrating AI into their operations encounter liabilities that traditional insurance policies may not fully address. From intellectual property disputes to biased algorithmic decisions leading to lawsuits, the risks are vast.

This article looks at how insurance products can help AI firms manage the risks inherent in their operations.

AI-Specific Risks

AI businesses, whether startups developing machine learning models or enterprises integrating AI into core operations, face a range of exposures. Operational failures, cyber threats, liability claims, and regulatory risks are just a few challenges that could result in financial losses or reputational damage.

In December 2023, The New York Times sued OpenAI and Microsoft, alleging copyright infringement. The lawsuit argues that AI models were trained on proprietary content without permission, highlighting the legal uncertainties surrounding data use in AI development. Such litigation can be costly, and AI firms must consider liability coverage to protect against similar claims.

Though predating today’s AI boom, another risk when deploying automated decision-making systems —one that even bankrupted a multinational company is the Knight Capital incident. The financial services firm ran a faulty algorithm, resulting in a $440 million loss in just 45 minutes.

Insurance Products for AI Businesses

To address these challenges, insurers are developing specialized policies tailored for AI companies.

Errors and omissions (E&O) insurance is becoming critical, covering AI-related mistakes that lead to financial harm like incorrect model predictions causing business losses. Cyber insurance is another key product, safeguarding AI firms from data breaches, hacking incidents, and regulatory penalties, as seen in the increasing number of AI-driven cyberattacks targeting sensitive data. Business interruption insurance is also evolving to cover AI-driven operational failures, which could halt services and cause revenue losses.

Companies like Munich Re and Hiscox are already offering AI-specific coverage, adapting traditional policies to meet the unique risks AI firms face. For example, Hiscox has developed cyber insurance policies that include AI-specific risk scenarios, while Munich Re has been actively researching AI liability coverage to address emerging concerns. These products provide financial protection against legal disputes, operational failures, and cyber threats faced by AI businesses.

How to Price them?

The insurance industry has already faced the challenge of “silent cyber,” where traditional policies unintentionally covered cyber risks that were never explicitly priced into premiums. A similar issue could arise with “silent AI”—instances where AI-related risks are covered under existing policies without clear definitions or appropriate pricing models. Insurers must proactively refine policy language to address AI-specific exposures rather than waiting for costly claims to highlight the gaps.

A structured approach, like a scenario-based risk assessment, can help insurers determine how AI-related losses would be handled under current policies. By evaluating real-world AI risk cases, insurers can develop precise coverage models, ensuring that AI businesses have adequate protection while preventing unintended exposure within traditional insurance products.

Bottom Line

As AI technology continues to expand, so do the risks that come with it.

Insurance products tailored to AI-driven businesses will play a crucial role in providing financial protection against liability claims, cyber threats, and operational failures. Just as AI enhances efficiency and decision-making in insurance, insurers must evolve to create explicit, well-structured policies that meet the needs of the AI industry.

Companies at the forefront of AI innovation should actively seek specialized coverage, ensuring that as they push technological boundaries, they remain protected against the uncertainties that come with it.