AI, Risk, and Insurance: A Practical Guide for Businesses

AI is reshaping how many businesses operate, but it also brings complex risks that can catch you off guard. From cybersecurity gaps to intellectual property challenges, managing AI’s impact goes beyond tech – it requires smart insurance. In this guide, you’ll learn how layered AI risk insurance protects your company and how to navigate vendor and legal traps so you can confidently grow with AI on your side.

Generative AI is a processing tool built on deep machine learning that can digest colossal amounts of data. It can synthesize, translate, analyze and summarize dense information in a human tone. Its responses and interactions may seem human, but it’s programmed that way.

For all of AI’s perks, there are just as many risks. Practical questions remain: How can AI help your business and how do you ensure the risks?

AI implementation considerations

While it’s true that AI can be resource-intensive at the outset, it could offer long-term advantages if you appropriately implement it. Implementation requires a lot of planning, including addressing cybersecurity, intellectual property and data privacy concerns. Using AI could also impact job roles.

Make a plan to navigate these changes. Adopt policies around AI and be transparent about how you intend to use it in your operations.

AI tools require a layered approach to risk mitigation

There isn’t a specific type of insurance for AI liability yet. But you can insure against the evolving AI risks using layers of insurance, including the following:

Type of Insurance	What It Covers
Cyber Liability / Data Breach Insurance	Covers legal fees and expenses related to cybercrime. Includes costs for network restoration and identity monitoring if personal data is exposed. Essential for any business using internet-connected devices.
Technology Errors & Omissions (E&O)	Protects software developers and tech consultants against negligence, mistakes, or failure in professional duties. Important for anyone recommending or working with AI products.
Intellectual Property Insurance	Covers legal expenses for lawsuits involving IP infringement. Especially important with generative AI that may unintentionally produce infringing content.
Media Liability Insurance	Covers claims that your content caused financial harm or emotional distress (e.g., defamation, copyright issues). Important if using AI-generated content or working with influencers.
General Liability Insurance	Covers legal fees and damages from physical harm or accidents. Applies if AI-powered machines or robots cause injury or property damage.
Directors & Officers (D&O) Insurance	Protects executives and board members from personal liability in lawsuits. Covers legal fees and settlements. Critical for leadership roles and board participation.
Professional Liability Insurance	Covers claims of negligence or inadequate work. Also known as E&O insurance, but broader beyond just tech-specific roles.
Employment Practices Liability Insurance (EPLI)	Covers lawsuits from employees (e.g., harassment, discrimination, wrongful termination). Especially relevant when using AI in hiring or HR processes.
Supply Chain Liability Insurance	Protects against financial losses from supply chain disruptions (e.g., natural disasters, cyberattacks, AI errors). Includes third-party coverage for vendor-related issues.
Employee Theft / Crime Insurance	Covers losses from internal threats like employee theft or fraud. Often requires an add-on, as many standard policies exclude insider incidents.

Your vendors’ AI could expose you to risk

Even if you don’t use AI directly, your supply chain might. Take time to understand how your vendors use AI, and their ability and willingness to take responsibility for it. Be wary of vendors that absolve themselves from all liability after implementation.

For example, say one of your vendors uses AI to place orders and send confirmations. The AI tool malfunctions and fails to place incoming orders, but it sends confirmations anyway. The resulting backlog creates a supply chain bottleneck, causing you to lose clients. Will your vendor handle the liability?

Vet your vendors for responsible use of AI

Be clear on the division of liability with your vendors. Follow the same best practices you would with any technology and use a reputable tech company. Do they offer employee training and ongoing support? Research their warranties and ask for proof of their insurance, like technology E&O coverage.

International laws have different AI regulation requirements

If you use AI across international locations, ensure your insurance and usage policies comply with local laws and regulations. Consult your lawyer before signing any business contracts or agreements, especially cross-border ones.

Bolstering your cyber liability insurance application

Cyber liability insurance can mean the difference between bankruptcy and recovery after a cyberattack.

How insurance companies evaluate cyber applications

Insurance companies will request information to assess your vulnerability to an attack so they can price the policy. The higher your risk of an attack, the higher your premium will be. They’ll also look at:

• Your data-sharing, collection and storage practices

• Your cybersecurity strategy

• Your cyber incident response plan

Be truthful about your AI use, computer information and cybersecurity protocols. If you omit or embellish a process, you risk a claim denial in the future.

Cybersecurity is crucial to your business

It can be intimidating to put your cybersecurity under scrutiny. The Cybersecurity & Infrastructure Security Agency has information to help business owners evaluate their risks and find solutions.

Stay vigilant and protect your liability

Contact your agent about AI initiatives at your company. And if you rely heavily on vendors, ask about third-party liability insurance. They’ll help you find insurance solutions so you can focus on making the most of your AI tools.