Why Insurers Are Worried: The Risks of AI in the Insurance Industry
What happens when the rapidly adopted software becomes too risky for insurance coverage? This is a question that major insurers are beginning to grapple with. Firms like AIG, Great American, and WR Berkley are currently seeking permission from U.S. regulators to exclude AI-related liabilities from corporate policies, citing concerns over the unpredictability of AI outputs. One underwriter noted that the results generated by AI models are often "too much of a black box."
The insurance industry has witnessed several high-profile incidents that have fueled these concerns. For example, Google’s AI erroneously accused a solar company of legal troubles, resulting in a $110 million lawsuit in March. Similarly, Air Canada found itself obligated to honor a discount that its chatbot had arbitrarily created. Moreover, last year, fraudsters employed a digitally cloned version of a senior executive to steal $25 million from the design firm Arup during a convincingly realistic video call.
What truly alarms insurers is the potential for systematic risk—thousands of simultaneous claims triggered by a single malfunction of a widely used AI model. As pointed out by an executive from Aon, while insurers can manage a major loss to one company, they would struggle to cope with the aftermath of an AI mishap causing widespread damages across multiple businesses at once.
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