Insurance industry has no coverage for AI risks, captive conference hears
Insurers are pulling artificial intelligence out of standard policies faster than the industry can price it, leaving companies with uninsured AI exposure on their balance sheets.
An informal poll at the Bermuda Captive Conference found that most attendees used AI at work and home, yet none had actual AI liability coverage. Many insurers now exclude AI from cyber, commercial general liability, directors and officers, and traditional policies.
"There just needs to be an understanding that there is this orphaned AI risk on the parent company balance sheet," said Troy Dort, director of management consulting at KPMG.
Manuscript policies emerge as interim solution
Dort recommended buying AI liability coverage through endorsements from existing carriers or adding it into a captive policy, rather than paying premium rates in the standard market.
Sarah Hopkins, a senior associate at Fenwick who advises companies in insurtech and emerging technology, said insurers are pulling AI because it represents a fundamentally different risk than traditional exposures. "The amount of risk that it represents is significant to the point that insurers are wanting to pull it out," she said.
Some insurers are not covering AI at all until they understand it better. "Many folks, insurers included, don't understand exactly where the edges are," Hopkins said. "They don't know how to get their arms around it, and so you see fear seeping into all of this."
Coverage needs vary by entity and use case. Hopkins compared the current AI insurance market to cyber insurance in its early days, when custom manuscript policies were standard. "Now that we are seeing more and more standardisation, we are back at the beginning with AI," she said. "There is going to be a lot more manuscripting than you see happening on the coverage side."
Captives positioned to address gap
Federico Candiolo, consultant senior corporate counsel at ASW Law, expects captive insurers to develop policies tailored to AI risks. As companies deploy more public AI tools, governance expectations will intensify, he said.
Boards face increasing responsibility for AI oversight and use. That responsibility will drive demand for specialized coverage and training programs within organizations.
AI adoption accelerating across sectors
Thomas Galbraith, cofounder and CEO of Barkr, expects significant adoption of large and small language models over the next year. "The AI consult models are going to start to do things which fundamentally change the way people operate on their cases," he said.
These models will eventually understand individual users and their data well enough to manage daily operations, Galbraith added.
Actuaries won't be replaced, but roles will shift
James Wencil, consulting actuary at Pinnacle Actuarial Resources, dismissed concerns that AI will eliminate actuarial work. "The technology cannot sign a statement of actuarial opinion," he said. AI will accelerate the data analysis phase and free actuaries to focus on judgment and decision-making.
Wencil cautioned that AI deployment requires care to avoid creating new risks or compromising data integrity.
Insurance professionals looking to understand these emerging exposures should review AI for Insurance resources and Generative AI and LLM fundamentals to grasp the technologies driving the coverage gap.
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