The Rise of AI Exclusions in Insurance: Navigating New Risks

In an era where artificial intelligence (AI) is woven into the fabric of both personal and business environments, the insurance industry finds itself at a crossroads. With the rapid integration of AI technologies, insurers are increasingly concerned about the potential liabilities that come with them. As a result, many are moving to exclude AI-related risks from their commercial liability policies. This shift signals a significant evolution in how insurers view these emerging technologies and the risks they pose.

Recent developments indicate that three specific endorsements from the Insurance Services Office (ISO) have caught the attention of numerous carriers. Alana McMullin, a partner at Lathrop GPM specializing in complex insurance disputes, notes that the industry is undergoing a swift transformation in its approach to AI-related risks. "There’s been a major shift in the insurance industry’s treatment of AI-related risks, and insurers are moving very quickly to limit this exposure," she explains.

The New ISO Endorsements and Their Implications

The three ISO endorsements currently drawing interest are:

• Generative Artificial Intelligence Endorsement CG 40 47: Excludes coverage for bodily injury, property damage, and personal and advertising injury arising from generative AI within the Commercial General Liability Coverage.
• Generative Artificial Intelligence (Coverage B Only) Endorsement CG 40 48: Specifically targets personal and advertising injury related to generative AI.
• Generative Artificial Intelligence Endorsement CG 35 08: Excludes coverage for bodily injury and property damage stemming from generative AI in the Products/Completed Operations Coverage.

These endorsements are seen as the catalyst for a growing movement to formally exclude AI risks across various lines of coverage. While there is a rush among insurers to file these exclusions, the full impact will not be clear until policy renewals begin. McMullin cautions that the landscape is still evolving, making it difficult to predict how broadly these exclusions will be adopted or what specific lines of coverage will be affected.

The Market Response: Adoption vs. Hesitation

As the insurance industry grapples with the implications of AI, the question arises: how will insurers respond? Joe Lam, vice president of liability at Verisk and one of the architects of the ISO endorsements, reports a high level of interest from carriers regarding these new exclusions. He notes that while new endorsements typically generate attention, the unique nature of AI-related risks further amplifies this interest. "Everyone acknowledges that this is new technology that is going to create or introduce new exposures that were never contemplated before," Lam states.

However, the hesitancy to adopt broad AI exclusions is palpable. Insurers face market pressures that could discourage aggressive exclusionary practices. McMullin points out that overly broad exclusions could render policies less attractive, especially given AI's pervasive role in modern business operations. This creates a dilemma: insurers need to mitigate risk while remaining competitive.

Emerging Legal Risks from AI

The urgency behind these exclusions is further underscored by a surge in AI-related lawsuits. According to a recent study by Gallagher, AI-related litigation has skyrocketed, showing a staggering 978% increase from 2021 to 2025. This spike includes various claims, such as:

• Patent infringement (11.9%): Challenges regarding how AI systems are developed and operate.
• Copyright infringement (11.2%): Issues related to the use of copyrighted material in AI-generated content.
• Personal injury claims (10.2%): Cases involving privacy violations and misuse of personal data.

These figures highlight the growing complexity of legal challenges associated with AI, particularly as businesses increasingly rely on these technologies. McMullin notes that traditional liability policies might inadvertently cover certain AI risks if those risks are not explicitly excluded, creating an unpredictable legal landscape.

Insurers and Policyholders: A New Dynamic

As insurers navigate the murky waters of AI exclusions, it is essential for policyholders to understand their potential vulnerabilities. McMullin emphasizes the importance of proactive engagement: "It’s policyholders who need to be proactive and understand their potential for AI risks and use other avenues of risk mitigation to close gaps that may potentially be there in coverage." This might include revising existing policies to ensure comprehensive coverage or investing in additional risk management strategies.

Interestingly, policyholder influence may play a significant role in how widely these exclusions are adopted. As companies negotiate renewals, their preferences and concerns about AI risks will shape the market response. Insurers may find themselves compelled to tailor their offerings based on client demands, opting for nuanced underwriting solutions rather than blanket exclusions.

Looking Ahead: The Future of AI in Insurance

The future of AI exclusions in insurance remains uncertain, particularly as legal interpretations and regulatory developments continue to evolve. The absence of a definitive bellwether case leaves insurers and policyholders alike in a state of ambiguity. As McMullin notes, "There’s yet to be a bellwether case that would indicate how courts and insurers will interpret these AI exclusions," underscoring the fluidity of the situation.

In the coming months and years, the insurance industry will need to adapt to the rapidly changing landscape of AI. Insurers will be tasked with balancing risk exposure and market competitiveness, while policyholders must stay informed and proactive about their coverage needs. This dynamic relationship will be critical in shaping the future of insurance as it pertains to AI risks.

Key Takeaways

• AI exclusions are on the rise: Insurers are increasingly filing endorsements to exclude AI-related risks from policies.
• Legal risks are escalating: AI-related lawsuits have surged, highlighting the need for clear coverage parameters.
• Policyholder influence is crucial: Companies can shape insurer offerings through their negotiation power.
• Proactive measures essential: Businesses must understand and mitigate their AI-related risks effectively.

Frequently Asked Questions

What are AI exclusions in insurance?

AI exclusions in insurance are specific clauses within policies that explicitly deny coverage for liabilities arising from the use of artificial intelligence. These exclusions are being introduced by insurers to limit their exposure to new risks associated with AI technologies, particularly as legal challenges related to AI continue to rise.

How can businesses protect themselves from AI-related risks?

Businesses can protect themselves by actively engaging with their insurers to understand policy language and ensure that they are adequately covered for AI-related risks. This may involve seeking endorsements that specifically address AI coverage, implementing robust risk management strategies, and staying informed about emerging legal trends and technologies.

What should I do if my policy has an AI exclusion?

If your policy includes an AI exclusion, it is crucial to review the terms carefully. Consult with an insurance professional or legal advisor to understand the implications of the exclusion on your coverage. You may need to consider negotiating with your insurer for additional coverage or seeking alternative policies that do not have such exclusions.

Will AI exclusions affect insurance premiums?

Yes, the introduction of AI exclusions may impact insurance premiums. Insurers may adjust premiums based on the perceived risks associated with AI technologies. Companies that demonstrate proactive risk management strategies may be able to negotiate more favorable terms, while those with significant exposure could see premium increases.