Navigating AI in Business: Opportunities, Risks, and Insurance Protection
Welcome! I’m Ashlynne, co-owner of VP Custom Insurance Solutions.
My goal with this blog is to make insurance easier to understand—answering the questions that often go unasked and giving you a behind-the-scenes look at what it’s really like to be an agent.
Now, let’s dive into what you came here for.
Generative AI is built on deep machine learning that can process colossal amounts of data. It can synthesize, translate, analyze, and summarize complex information in a human-like tone. While its responses may seem natural, they are programmed outputs.
For all of AI’s benefits, there are just as many risks. The key questions are: How can AI help your business—and how do you manage the risks?
Implementing AI in Your Business
AI can be resource-intensive at the outset, but the long-term benefits can outweigh the costs if implemented thoughtfully. Successful adoption requires:
Planning: Address cybersecurity, intellectual property, and data privacy concerns before deployment.
Workforce impact: Understand how AI will affect job roles and workflows.
Transparency: Adopt policies around AI use and communicate clearly with employees, clients, and partners.
By creating a proactive plan, you’ll be better equipped to manage change and maintain trust.
Managing AI Risks with Insurance
There isn’t a single “AI insurance” policy today. Instead, businesses use a layered approach to address AI-related risks. The following types of coverage can help:
Insurance : What It Covers
Cyber liability or data breach insurance: Covers legal fees and recovery expenses from cybercrime, such as restoring networks or monitoring identity theft after a data breach.
Technology errors & omissions (E&O) insurance: Protects developers and tech consultants from negligence, mistakes, or professional failures. Essential if you recommend or provide AI solutions.
Intellectual property insurance: Covers defense costs in lawsuits involving infringement. Important since AI can generate content that may unintentionally violate IP laws.
Media liability insurance: Protects against claims of financial harm, copyright infringement, or defamation from AI-generated or influencer content.
General liability insurance: Covers legal expenses from physical harm—for example, accidents caused by AI-powered equipment.
Directors & officers (D&O) insurance: Protects board members and executives from lawsuits tied to management decisions, including those involving AI.
Professional liability insurance: Covers claims of inadequate work or negligence—sometimes overlapping with E&O.
Employment practices liability insurance (EPLI): Covers employee lawsuits such as harassment, discrimination, or wrongful termination. Risk rises if you use AI for hiring or performance reviews.
Supply chain liability insurance: Protects against losses from supply chain disruptions caused by AI errors, automation breakdowns, or outages.
Employee theft or crime insurance: Safeguards against insider threats, including employee misuse of AI systems.
Vendor and Supply Chain Considerations
Even if you don’t use AI directly, your vendors might—and that can expose you to risk. For example, if a supplier’s AI order system malfunctions, you could lose clients due to missed deliveries.
Best practices when vetting vendors:
Ask how they use AI and who holds liability if it fails.
Require proof of insurance (e.g., tech E&O).
Confirm warranties, training programs, and ongoing support.
Avoid contracts where the vendor absolves themselves of all liability.
Global and Legal Compliance
AI laws differ internationally. If your operations cross borders, ensure your insurance and usage policies align with local regulations. Always consult legal counsel before signing contracts that involve AI use abroad.
Cybersecurity and Insurance Applications
Cyber liability coverage can make the difference between recovery and bankruptcy after a cyberattack. When applying for coverage, insurers will evaluate:
Your data collection, storage, and sharing practices
Your cybersecurity framework
Your cyber incident response plan
Be transparent about your AI use and safeguards. Misrepresentation can result in denied claims.
For guidance, the Cybersecurity & Infrastructure Security Agency (CISA) offers resources to help businesses assess vulnerabilities.
Bottom Line: Stay Vigilant and Protected
AI offers tremendous potential, but it also introduces new risks. Protect your business by:
Implementing strong cybersecurity and oversight practices
Reviewing vendor liability policies carefully
Using layered insurance solutions to address gaps
Contact your insurance agent to discuss how AI initiatives could affect your coverage. If you rely heavily on vendors, ask about third-party liability protection. With the right planning and safeguards, you can embrace AI while protecting your bottom line.