Artificial intelligence (AI) is no longer something from science fiction books and movies. The idea of robots that help with homework or chores around the house is now a part of the daily lives of many. As AI grows, it is important to track common areas of concern over how AI use affects commercial insurance coverage for businesses, and the insurance coverage lawyers at Fee, Smith & Sharp LLP are continuing to analyze this developing topic.
How Would an Insurance Company Use AI?
We often first think of AI when wondering what the weather will be tomorrow or whether an employee really wrote that white paper from scratch. Yet, AI has undeniable uses in the insurance industry, as recognized by the National Association of Insurance Commissioners (NAIC). Coupled with existing data sources, AI can:
- Track drivers’ behaviors – Drivers who permit auto insurance companies to track their driving habits are frequently provided discounts for positive behaviors behind the wheel. In theory, this also creates fewer collisions due to fewer risky decisions.
- Automate processes – In the life insurance industry, many underwriting processes can be automated. This automation ultimately allows for greater customization of policies and provides customers with more flexibility in their plans.
- Improve customer service – Regardless of the type of insurance, AI can help improve customer interactions by allowing companies to make more data-based decisions in determining what to offer customers and how to best structure policies.
- Speed customer decisions – Faster responses and near real-time quotes also help customers make faster decisions with better information about the plan for which they are shopping.
Put simply, AI can help provide more individualized information to insurance companies. That person-specific information then allows companies to build options for coverage based on each person as opposed to averages or median data from large groups of people based on a specific demographic characteristic. The introduction of AI into the insurance industry can yield measurable benefits for both companies and their customers.
Impact on Risk Profiles
While there are clear benefits to the application of AI to the insurance industry’s own processes, those benefits do not come without accompanying risks on the insured’s side. It’s vital for the industry to be aware of and continue to analyze those risks. Each focus of the insurance industry has unique considerations, but there are also some universal factors across the industry. As insurance companies navigate the application of AI to their established practices and perhaps create new operational procedures using AI, it is critical to evaluate the associated risks, such as:
Property and Casualty
Introducing AI into these foundational coverage types is not directly impactful on its own, but existing risk may be increased. Insurance companies must stay aware of how covered clients are using AI in both traditional and non-traditional ways to ensure a proper evaluation of risk management.
Cyber
Where there is cyber, there is AI. The constant need for vigilance and cyber risk mitigation has not changed in the rise of AI, but the ability for cybercriminals to apply AI has been amplified. To aid in their attempts to phish, hack, or otherwise break into a company’s systems, these sophisticated individuals or networks have increased the threats to data mining and system attacks.
Of course, using AI to build a defense is also an important angle when evaluating this piece of the insurance business, and evaluating privacy leaks is an important new angle.
D&O Management Liability
The market seems to repeat to consumers that AI companies are full of promise. Due to the uncertainties of the businesses, the varying types of AI, and the overall lack of regulation in the industry, however, there remains a higher chance of a securities class action lawsuit if an AI company cannot deliver on its promises to investors. Further, the laws and regulations that do exist in this space leave directors and officers subject to a new type of liability.
Ensuring Policy Accuracy
In all types of insurance, policy language must properly reflect coverage and any potential exclusions based on the integration of AI into clients’ businesses. Both insurance companies and their clients must closely review existing policies and take great care when constructing new policies. Such review and development can ensure that coverage is what is expected and the use of AI in operations does not get ahead of either party.
How to Handle the Introduction of AI Into Insurance
When evaluating how to consider AI in developing policies, several concerns are common across the insurance industry. Clients should also be encouraged to remain in contact with their insurer as they make any changes to operations that may impact concerns such as:
- Risk identification – It is critical that insurance companies take time to understand the integration of AI and identify the risks associated with each part of the client’s operations that may be affected by AI. Effects may be direct or indirect.
- Coverage adjustments – As clients are making decisions about integrating AI, their risks will shift. The policies must have provisions accounting for known existing and potential risks, but must also consider how those risks may change with new AI applications.
- Governance – The insurance company and the client must have a shared understanding regarding the processes for management and reporting of AI use and governance. Legal, compliance, and security considerations should be clearly identified and articulated.
Strong communication practices on the part of both the insurance company and the client will be of paramount importance in properly incorporating AI use into policies. A shared understanding of risk, shifting law and policy landscapes, uncertainties surrounding developing products, and the rise of new use cases will continue to impact the insurance world for some time.
Seek Guidance in Understanding How AI May Affect You
AI is both exciting and concerning, as its benefit depends on how well it is controlled and implemented. Fo insurance applications, it’s crucial to enact standards within your company to review any errors to ensure both the insurance provider and the policyholder maintain necessary rights and protections. In addition, lawmakers introduced the Texas Responsible AI Governance Act in 2025 in an effort to regulate how businesses incorporate AI practices and the duties they owe to the public.
The insurance coverage attorneys at Fee, Smith & Sharp LLP are continuing to monitor and analyze the latest protocols and challenges in this unique space. We are ready to meet with you and advise you on how these changes may affect your company.
