The rapid commercial implementation of artificial intelligence and the risks that come with it have led to calls for insurers to create specific policies to cover the threats.

Reinsurance broker Lockton Re and AI insurance solutions company Armilla AI have released a new report, Ready or Not: The Impact of Artificial Intelligence on Insurance Risks, examining how the rapid adoption of artificial intelligence is reshaping insured risk across commercial lines.

It concludes that the increasing speed of implementation brings with it specific risks and theses risk now demand a new approach from insurers. The industry has been wrestling with its approach to cyber risk with specific polices now available to ensure that cyber risks are not hidden in broader commercial covers.

The report stated: “The use of artificial intelligence (AI), including generative AI (predominantly large language models) and agentic AI (autonomous agents making decisions without human input), is expanding rapidly. The volume of commentary on AI’s impact on insurance is growing almost as fast.

“Most of this commentary to date has focused on the transformative power of the technology to improve efficiency and productivity, as well as reduce costs and streamline workflows within the insurance industry and beyond. This has positive consequences of higher margins, improved customer experience, and reduced waste. Clearly, there are also negative potential implications relating to employment and training prospects.”

Oliver Brew, co-author and head of cyber centre of excellence, Lockton Re, said “The benefits of AI are clear. It is also important to recognise that AI is fundamentally different to traditional software. The probabilistic nature of AI and its ability to synthesize massive amounts of data mean it is prone to errors, which will have huge implications wherever implemented.

“There are no sectors of the economy that are insulated from the potential impact of AI. As an industry we need to prepare for how these rapidly evolving risks are underwritten across commercial insurance and what emerging claims patterns will look like. The current lexicon and frameworks for insurance products and risk categories were not designed with these systems in mind and are increasingly misaligned with how AI-related losses occur.”

The report seeks to map AI-related exposures across key commercial classes, highlighting areas where coverage may be silent, fragmented, or misaligned with how AI failures manifest in practice. It also explores systemic risk considerations arising from shared AI infrastructure, common foundation models, and correlated model behaviour across portfolios.

Baiju Devani, co-author and CTO & cofounder, Armilla AI, said the risks demand a new approach from insurers.

“The underwriting of AI risk needs to consider the novel perils created. Even if we recognise the peril, there is a growing gap between what insurers intend to cover and what they actually cover,” he explained. “The underwriting toolkit needs to develop at pace to model and price AI risks. Additionally, the challenge for the insurance industry is not whether AI will create systemic risk events, but when, and if underwriting practices can keep pace. AI risk concentration operates through different mechanisms than traditional commercial insurance.”

The report includes a detailed claim scenario involving an AI-powered customer service chatbot that generates incorrect warranty commitments without any system breach or malicious activity illustrating how AI-driven losses can fall outside traditional cyber and liability triggers while still creating material financial and regulatory exposure.

It concluded: “For end buyers of insurance products, as well as brokers, understanding how the complexities of different policies f it together is critical. This only becomes more difficult when contemplating how AI models change how existing insurance coverage operates. For insurers and reinsurers, being able to understand, underwrite, and manage the impact of AI on each covered peril is fundamental to mitigating unexpected outcomes or avoiding unanticipated risks being covered inadvertently. Now is the time to consider AI as its own category of risk classification, develop policy solutions that address the risks directly, and future-proof the exposures in a manageable way.”

Karthik Ramakrishnan, CEO & Cofounder of Armilla AI, explained “the report highlights how ambiguity in insurance contracts reduces the perceived value of coverage as AI systems move into core business decision-making. The silence in policy language creates uncertainty when claims arise. Both insurers and policyholders benefit from greater clarity in how AI-related risks are addressed to support responsible adoption of the technology.”

The industry has been wrestling with its approach to cyber risk with specific polices now available to ensure that cyber risks are not hidden in broader commercial covers.