As artificial intelligence (AI) continues to transform industries worldwide, the insurance sector finds itself in a unique position—both as a potential source of AI risk and as a key player in managing and mitigating those risks for other industries. Recent analyses suggest that while the insurance industry faces moderate AI-related risks, its role in covering AI risks for other sectors is expected to grow significantly over the next decade.

This blog explores the current and future landscape of AI risks in the insurance sector, the shifting risk profile of other industries, and the opportunities for insurers to develop new products and services to address these emerging challenges.

AI Risk in the Insurance Industry: A Moderately Favorable Outlook

Currently, the insurance industry ranks sixth in terms of overall AI risk exposure across 10 major industries. This is largely due to the nature of the business—dealing with data, algorithms, and underwriting decisions that, if flawed or biased, can result in significant financial and reputational harm. However, the sector’s ranking is expected to improve slightly by 2034, moving to seventh place, thanks to the industry’s ability to proactively address AI-related risks through a combination of evolving regulatory frameworks, advanced risk modeling, and more sophisticated AI applications.

While the insurance industry will continue to face risks from AI, such as algorithmic underperformance or data bias, the sector’s relatively lower frequency of AI-related incidents compared to more tech-driven industries offers a measure of protection. Additionally, the industry’s diversification across lines of business and its ongoing investment in risk management technologies will help mitigate the most severe impacts of AI-related incidents.

However, insurers must remain vigilant. The nature of AI risks is such that they can accumulate silently within portfolios, potentially leading to significant liabilities if not properly managed. Ensuring that AI-driven processes are regularly audited and that adequate protections are in place will be key to maintaining this favorable risk position.

The Rising AI Risks in Other Sectors: A Growing Opportunity for Insurers

As industries across the board increasingly integrate AI into their operations, the demand for insurance products that address AI-specific risks is expected to grow. Some sectors are seeing their AI risks escalate faster than others, presenting opportunities for insurers to step in and offer tailored coverage.

Industries such as healthcare, mobility, and transportation are expected to experience the highest increases in AI risk over the next decade. For example, healthcare is projected to become the most exposed sector to AI risks by 2034. This is driven by the growing use of AI in diagnostic tools, medical devices, and pharmaceutical research, where performance risks and intellectual property disputes are likely to increase. Additionally, algorithmic errors in healthcare could lead to significant financial losses related to malpractice claims, bodily injury, or product liability.

The transportation and mobility sector is also expected to face heightened AI risks, particularly with the rise of autonomous vehicles. Algorithmic and performance risks will become critical as more vehicles rely on AI for navigation, safety, and decision-making. Insurers could play a crucial role in offering coverage for incidents related to the malfunction or failure of AI-driven systems, particularly in the context of liability for accidents involving autonomous vehicles.

For insurers, these developments present both a challenge and an opportunity. The growing complexity of AI-driven systems across industries will require more specialized coverage, and insurers will need to develop new products that can adequately address these emerging risks. AI performance guarantees, intellectual property protection, and liability coverage for AI failures are all areas where insurers could innovate to meet the needs of industries with high AI risk exposure.

Key AI Risk Types in Insurance and Other Sectors

AI-related risks can take many forms, from algorithmic failures to data bias and intellectual property disputes. Understanding the specific risks that AI poses to both insurers and the industries they cover is essential for developing effective risk management strategies.

● Algorithmic and Performance Risk: The most significant AI risk across industries is the potential for algorithmic underperformance. As AI systems become more deeply embedded in critical infrastructure—such as autonomous vehicles, manufacturing plants, or healthcare systems—the consequences of poor performance can be severe. Insurers will need to offer coverage for performance-related failures, which could lead to property damage, financial loss, or personal injury.

● Data Bias and Ethics Risks: AI systems that rely on biased or incomplete data can produce unfair or discriminatory outcomes, leading to legal liability and reputational damage. For the insurance sector, this risk is particularly relevant when AI is used in underwriting and claims processing. Insurers must ensure that their AI systems are transparent and free from bias, both to avoid potential liabilities and to maintain customer trust.

● Intellectual Property (IP) Risks: IP disputes related to AI technology are another growing concern, particularly in sectors like healthcare and IT. With AI systems often relying on proprietary algorithms or copyrighted materials, insurers can provide coverage for potential IP infringement claims, helping businesses navigate the complex legal landscape surrounding AI innovation.

● Cybersecurity: While cyber risks related to AI are currently perceived as less severe compared to other risk categories, they are likely to grow as AI becomes a more integral part of digital infrastructure. Cyberattacks targeting AI systems could lead to significant disruptions, especially if AI is used in critical applications like healthcare or energy management.

The Role of Insurers in Mitigating AI Risks Across Industries

As AI continues to reshape industries, insurers have an important role to play in managing and mitigating the associated risks. By offering specialized AI risk solutions, insurers can help businesses navigate the complexities of AI deployment while building trust in these emerging technologies.

One area of growing interest is AI performance guarantees. These policies provide assurance to companies that their AI systems will perform as expected, with insurers offering compensation if the technology fails to meet agreed-upon standards. This type of coverage is especially relevant for industries where AI plays a critical role, such as healthcare, transportation, and manufacturing.

Additionally, existing insurance products can be adapted to cover AI-related risks. For example, professional liability policies may already include coverage for algorithmic errors or data breaches, and insurers can offer endorsements or riders that specifically address AI-related issues. However, insurers must be mindful of “silent AI risk”—instances where AI-related incidents may not be explicitly covered or excluded by traditional policies. Clear policy language and regular reviews of AI risk exposure will be essential to avoid unexpected liabilities.

Building Digital Trust Through AI Risk Solutions

For the insurance industry, the ability to offer robust AI risk solutions is not just about protecting businesses from financial loss—it’s about fostering the digital trust needed to fully harness the potential of AI. As AI becomes a more central part of how industries operate, insurers will play a key role in building confidence in these technologies.

To stay ahead of the curve, insurers must continue to innovate, offering products that address the unique risks posed by AI while ensuring that their own use of AI is transparent, fair, and accountable. By doing so, the insurance industry can not only protect its clients from the risks associated with AI but also help drive the broader adoption of AI technologies across industries.

Critical risk management solutions offerings

As AI reshapes industries, the insurance sector is well-positioned to offer critical risk management solutions. By understanding the unique risks posed by AI, from algorithmic failures to data bias and cybersecurity threats, insurers can develop innovative products that protect businesses and foster trust in these emerging technologies. With a proactive approach to AI risk management, the insurance industry can continue to play a key role in the digital transformation of the global economy.