Insurers Retreat from AI Liability as Specialized Market Emerges

Major insurance carriers are increasingly excluding artificial intelligence (AI) risks from standard corporate coverage, signaling uncertainty about pricing and managing these emerging exposures. This shift is creating opportunities for specialized insurers and startups to fill the gap with tailored AI liability products.

The trend began accelerating this year as Berkshire Hathaway, Chubb, and Travelers sought regulatory approval to exclude AI-related damages from general liability policies. State regulators approved over 80% of these requests, particularly in Florida, Connecticut, and Maryland, according to The Information.

What’s Changing in Coverage?

The new exclusions address a wide range of potential liabilities arising from AI use:

  • Copyright and intellectual property infringement from generative AI outputs
  • Privacy violations and data misuse claims
  • Discrimination and algorithmic bias concerns
  • Defamatory content generated by AI
  • Physical damages caused by AI errors

Insurers are also capping AI losses in cybersecurity policies, further narrowing coverage options.

A New Market Takes Shape

The retreat from standard AI coverage is spurring the development of specialized products. Munich Re and startups like Corgi, Armilla, Mayflower Specialty, and Embroker now offer standalone AI liability policies with limits ranging from $2 million to $50 million.

This mirrors a pattern seen in cybersecurity insurance a decade ago when insurers initially excluded cyber risks from standard policies before developing specialized products as the threat landscape evolved. Premiums for AI coverage vary widely based on risk profile and industry, ranging from hundreds of dollars to several hundred thousand annually.

The Internal Paradox

The shift highlights an interesting paradox within the insurance industry itself. While carriers are deploying AI agents internally to improve efficiency across operations, they’re simultaneously limiting external exposure to AI risks - a move that PHL Firm suggests businesses should address by reviewing existing policies and seeking affirmative AI coverage through specialized products.