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AI is booming

How do you insure against new risks posed by AI? Here we talk you through insurance for companies using Artificial Intelligence (AI), Machine Learning, Chatbots and Large Language Models (LLMs)

The boom of Artificial Intelligence startups has taken some insurance companies by surprise. Some insurance brokers and companies are surprised when they see an enquiry from an AI company. Many assume AI, Machine Learning, Chatbots and Large Language Models are the sanctuary of the tech giants, such as Meta, Google and Microsoft. This cannot be further from the truth. With the emergence of easily accessible AI open-source code, which can be used commercially by new businesses and startups, we have seen a boom in insurance enquiries and requests linked to AI. The FT recently reported that Meta will shortly make its AI source code available for commercial use which will only further accelerate the race to be early adopters of the technology.

We have seen some very exciting enquiries, from what one may define as bread-and-butter AI, the design and deployment of chatbots for commercial websites, to the sophisticated, including the deployment of AI in the medical industry. The potential uses of AI are endless, but equally it does face its opposition in areas of society and also government!

Whilst there are some insurable risks facing Artificial Intelligence which are similar to that of software companies, there are areas whereby exposure will differ. As a practical example, two traditional insurance risks facing software companies are:

  1. Failure of the software to perform its intended function
  2. Inaccessibility / allegations the software is inaccessible due to outages / downtime

We feel the above insurance risks flow in a similar vein for an Artificial Intelligence company

  1. Failure of the AI to work as intended, especially if your contract includes guarantees on performance
  2. If your AI software is provided as a software as service and hosted in the cloud, like any SAAS companies you could be held liable for allegations of inaccessibility due to outages / downtime

There are however risks that differ. Especially if you use open-source code. For example, it is crucial any new startup AI company has vetted the licence agreements if it is using Open Source coding to ensure their commercial activity and intended use is permitted.

What is AI software insurance? 

Insurers are racing to release AI branded insurance products, but we sense the final outcome of that race is likely to simply be the re-design of SAAS (Software as a Service) insurance products as AI Insurance products. Whilst that race continues, the cover provided by a specialist technology/software insurance provider should cover the main exposures of concern, including but not limited to breach of IP, breach of client contracts, breach of confidentiality, and allegations of non-performance (errors and omissions).

Where we are concerned as a specialist broker is in regard to ‘open and honest’ declaration to insurance. We have already seen AI companies approach us that have sourced a generic software policy, with the insurance provider blissfully unaware the company is involved in Artificial Intelligence.

Many insurers with whom we have discussed the emergence of AI and machine learning technology, deem this risk to be ‘material’. What we mean by that is insurance companies would not expect an insurance broker to cut corners and simply present an AI company as a ‘software development company’. They would expect specific declaration of the fact the company is involved in artificial intelligence, machine learning and LLMs. I.e. the ‘fact’ the company in question is an “AI company” is a ‘material fact’, and any insurance documentation issued should note the company as either;

– AI / Artificial Intelligence company

– Machine Learning company

– Chat bot provider

– or a Large Language Model provider

Documentation that solely states ‘software’ is too generic, and insurers may argue misleading in the presentation of the risk, increasing the likelihood a claim could be avoided or declined by an insurer. 

Contact us now if you’d like to discuss securing insurance for your business.