Navigating the Hidden Liabilities of AI in Insurance

The rise of artificial intelligence (AI) is reshaping myriad industries, but perhaps none more so than insurance. A recent report by the Artificial Intelligence Underwriting Company (AIUC) has illuminated a critical issue: over **90% of insurers' AI agent exposure** is embedded in conventional policies that were never designed to address the unique risks posed by AI technologies. As AI agents begin to take on more complex tasks and responsibilities, the potential for liability claims is increasing, prompting a need for insurers and policyholders alike to reassess their existing coverage.

This evolving landscape raises significant questions about the adequacy of traditional insurance policies and the potential for disputes over liability when AI agents cause harm. The implications are vast, affecting not only insurance companies but also businesses that increasingly rely on AI for operational efficiency.

The Emergence of AI Agents

AI agents differ fundamentally from simple chatbots. While chatbots primarily generate responses based on user input, AI agents are designed to carry out tasks, such as operating software, accessing sensitive company data, and even moving funds, often with minimal human oversight. This operational capability introduces new vulnerabilities that can trigger claims across various categories, including:

• Professional negligence
• Data breaches
• Fraud and discrimination
• Cybersecurity failures

As AI technology becomes more integrated into business operations, the risks associated with these agents multiply. For instance, an incident involving an AI agent could lead to significant financial loss, disputes over liability, and challenges in determining which insurance policy responds to the claim.

Silent Coverage: A Hidden Threat

One of the most alarming findings from the AIUC report is the prevalence of what is termed “silent coverage.” This refers to risks that are neither explicitly included nor excluded in standard insurance policies. Insurers may face **liabilities for losses they did not price or anticipate**, leading to potentially catastrophic financial repercussions.

The report highlights specific areas where silent coverage is most pronounced:

• **Cyber Insurance**: Coverage for losses resulting from cyber events may not adequately address AI-related incidents.
• **Directors and Officers Liability**: Claims against company executives for failures related to AI decisions may not be fully covered.
• **Commercial General Liability**: Standard policies may not cover damages stemming from the use of AI technologies.
• **Errors and Omissions**: Technology errors and omissions policies often lack clear language regarding AI-related risks.

As a result, some insurers, including CFC, have begun to revise their policies to include affirmative AI wording, while others are opting for **absolute exclusions** of AI risks.

Real-World Implications

Several real-world cases have already tested the boundaries of AI liability. In 2024, the British engineering firm Arup lost **HK$200 million** (approximately **$25 million**) due to a sophisticated fraud scheme that involved deepfake technology. Criminals impersonated senior executives through deepfake video calls, persuading an employee to transfer funds to accounts they controlled. This incident raises complex questions about whether the transfer was a voluntary action or a result of fraud, complicating the insurance claims process.

In another case, a US solar installer, **Wolf River Electric**, has filed a lawsuit against Google seeking at least **$110 million** in damages, claiming that Google's AI Overviews feature disseminated false information about the company. These incidents illustrate how businesses can be exposed to significant risk when AI technologies are involved, and they highlight the challenges insurers face in defining coverage for these emerging liabilities.

The Call for Dedicated AI Coverage

Given the potential for major losses driven by AI incidents — the AIUC report estimates that a severe AI event could result in around **$100 billion** in direct losses — there is an urgent need for dedicated AI coverage and clearer policy language. The report advocates for common technical standards and the establishment of new insurance categories that specifically address AI-related risks.

Kevin Kalinich, head of intangible assets at Aon and a co-author of the report, warns that AI could lead to **“aggregated, systemic, correlated” losses**, a risk reminiscent of the aftermath of the September 11 terrorist attacks, which forced insurers to tighten coverage following significant claims. The insurance market must adapt to the realities of AI to avoid a similar crisis.

Market Responses and Future Directions

The market is already responding to these challenges. Research from Gallagher indicates that the professional liability market underwent substantial shifts between January 2025 and January 2026. Insurers are moving away from silent AI assumptions, opting instead for explicit affirmative warranties or outright exclusions for generative AI risks. This shift reflects a growing recognition of the need for clarity in policy language and coverage.

However, some industry experts caution that these measures may lead to a reduction in coverage for policyholders. The introduction of exclusions for generative AI could decrease hidden exposure, but it may also leave businesses with less protection against evolving risks. Insurers must strike a balance between managing risk and providing adequate coverage to their clients.

Key Takeaways

• Over **90% of AI-related liabilities** are embedded in traditional insurance policies that may not adequately cover these risks.
• “Silent coverage” poses a significant threat, as insurers may be liable for unforeseen losses.
• Real-world incidents highlight the complexities of AI-related claims and the challenges of establishing liability.
• There is an urgent need for dedicated AI coverage and clearer policy language to address emerging risks.
• The insurance market is shifting, with some carriers adopting explicit exclusions or affirmative warranties regarding AI risks.

Frequently Asked Questions

What is an AI agent?

An AI agent is a type of artificial intelligence designed to perform specific tasks autonomously, such as accessing company data, operating software, and managing funds, rather than merely generating responses to user inquiries like traditional chatbots. This capability raises new risks and liabilities for businesses that utilize these agents in their operations.

What are silent coverage risks?

Silent coverage risks refer to potential liabilities that are not explicitly included or excluded in traditional insurance policies. This can lead to uncertainties regarding whether a specific incident involving AI is covered, resulting in disputes over claims and potential financial losses for insurers who did not anticipate these risks.

How can businesses protect themselves from AI-related liabilities?

Businesses should conduct a thorough review of their insurance policies to identify potential gaps in coverage related to AI technologies. They may need to seek out specialized insurance products that address AI risks and ensure that their policies include explicit language regarding these exposures. Consulting with insurance professionals can also help businesses navigate this evolving landscape.

Is AI insurance coverage currently available?

While dedicated AI insurance coverage is still in its infancy, some insurers are beginning to offer products that address the unique risks associated with AI agents. As the market evolves, it is expected that more insurers will develop specialized policies that provide clearer definitions of coverage and exclusions related to AI technologies.