The Great AI Insurance Coverage Gap: How to Secure Your Firm as Insurers Retreat. Part 1

A reckoning is spreading through the global insurance industry. Insurers are moving to exclude AI-related risks - specifically Generative AI - from policies across multiple sectors.

For SMEs and large corporations alike, this creates an urgent imperative to audit existing coverage with their broker. Policies once assumed safe - Commercial General Liability (CGL), Cyber, Tech Errors & Omissions, Directors & Officers Liability, Professional Indemnity, and Media Liability - are now under the microscope. Directors and C-suite executives may soon discover that their current policies contain dangerous ambiguities regarding AI-driven losses, or that protection will be explicitly carved out at the next renewal.

For businesses that have rapidly deployed Generative AI tools, this insurer retreat leaves them exposed to significant risks with zero financial protection.

Three Steps to Clarity

Businesses can take three immediate steps to get ahead of potential liability:

1. Audit Your Coverage: Instruct your insurance broker to conduct a forensic examination of existing policies (particularly those listed above) to determine exactly which AI risks are covered, excluded, or legally ambiguous.
2. Quantify the Exposure: Ask your broker to quantify the extent of the liabilities you currently face (see sample questions below) and forecast how your insurer might amend the policy at renewal.
3. Explore Standalone AI Insurance Quotes Options: Investigate standalone AI insurance options to establish certainty.

While U.S. insurers are the first movers, these steps apply equally to businesses in the UK, EU, and APAC. Most current policies were written before the mass adoption of modern AI, consequently, the language is often unfit for purpose, leaving coverage ‘silent’ or dangerously unclear.

The Exclusion Movement

AI-related claims can materialize through a multitude of incidents. A simple customer service chatbot could lead to liabilities for an innocent deployer (e.g., a supermarket), ranging from intellectual property infringement and defamation to financial loss caused by ‘hallucinations’ or unintended data disclosure.

As Generative AI becomes embedded in professional workflows with varying levels of oversight, insurers fear a surge in claims. The Insurer has reported that major carriers—including WR Berkley, Cincinnati Financial, Philadelphia Insurance, and Frederick Mutual—are moving to exclude AI risks. One of WR Berkley’s reported exclusions is ‘absolute’ applying to "any actual or alleged use, deployment, or development of AI by any person or entity.” Similarly, the Financial Times recently reported that Great American and AIG have filed for AI exclusions with state regulators, though AIG noted it has no plans to implement them immediately.

Questions for Your Broker

With exclusions expanding, time is of the essence. Companies must challenge their brokers with specific queries:

1. Ambiguity Check: Where exactly are the grey areas in my General Liability, Cyber, and Errors & Omissions policies regarding AI?
2. Exposure Analysis: What is the potential financial impact of these ambiguities? What does the worst-case scenario look like?
3. Mitigation: Apart from insurance, what operational steps can I take to mitigate risk?
4. Renewal Forecast: Is my insurer introducing AI-specific endorsements? How will this alter my remaining liability?
5. Standalone Cover: What are my options for standalone Generative AI coverage that does not require invasive, pre-quote AI evaluations?

_______________________________________________________

FAQ:

• How do I know whether my current insurance covers AI incidents?
  • You must request a detailed audit from your broker. Most AI risks fall into policy “grey areas,” and coverage may depend on how exclusions, definitions, and endorsements are interpreted. This is something most companies would struggle to determine on their own.
• Are standalone AI insurance products available?
  • Yes. A small but growing market of standalone Generative AI coverage exists. Testudo’s AI Insurance products aim to provide clarity, fill coverage gaps, and avoid the invasive pre-quote technical audits required by some insurers.

Next steps:

1. The Testudo team is here to help you explore your AI insurance options. Get in touch to assess your AI exposure and how to manage your company’s risk.
2. Check out our Research & Insights blog for more AI insurance news.

Part 2. Will be released next week!