AI Risks and Business Insurance: What to Know in 2026 and Beyond

14 hours ago

6 min read

Artificial intelligence (AI) is quickly becoming part of everyday business operations. Companies are now using AI to communicate with customers, analyze data, automate administrative work, and support decision-making.

But as AI usage grows, so does the potential impact of AI misuse. With AI risks becoming material, a new question is becoming increasingly important for businesses: Does my insurance actually cover losses caused by AI?

Types of AI Risks Your Business May Face

AI can create exposure to business whenever it interacts with customers, employees, enterprise systems, confidential data, or physical equipment. Industry studies point to a range of AI-specific exposures, including:

· Copyright issues involving training data.

· Regulatory violations.

· Discrimination and algorithmic bias.

· Deepfakes.

· AI hallucinations and inaccurate outputs.

· Customer data exposure.

· Professional negligence.

· Reputational damage.

· Harm involving AI-controlled physical systems.

Disclosed US incidents during 2025 and 2026 highlight material cases across discrimination, professional negligence tied to hallucinated outputs, customer data exposure, reputational harm, and regulatory compliance.

Importantly, liability for AI harm remains with your business whether you use your own AI models or third-party AI software.

Does Business Insurance Cover AI Risks in 2026?

The short answer is: sometimes.

Most businesses currently don’t have a policy specifically called “AI insurance.” Yet, an AI-related loss may still fall under a policy you already carry. For example:

Cyber insurance may respond to certain data breaches or cybersecurity incidents involving AI.
Errors and omissions (E&O) insurance may respond when AI-assisted professional work allegedly causes a client financial harm.
Employment practices liability (EPL) insurance may become relevant when AI used in hiring decisions leads to allegations of discrimination.

Actual coverage, however, depends on the specific insurance terms, facts surrounding the loss, and applicable state laws. Simply having cyber or liability policy doesn’t mean every loss involving AI is covered.

The Biggest Challenge May Be "Silent AI"

Most existing insurance policies weren’t originally written with today's AI risks in mind. That creates what the insurance industry calls "silent AI": the policy may not explicitly say that AI-related losses are covered, but it may not explicitly exclude them either.

2026 research by ScienceSoft, an AI transformation and software engineering company working with the insurance industry, found that a large share of potential AI exposure under existing policies remains in this gray area. While established specialist liability products are positioned to cover AI-related incidents at least partially or conditionally, AI losses under broader general and product liability lines may not be covered at all.

For you as a business owner, this creates a material concern: unless you clarify your coverage beforehand, you may not know how your insurance will treat an AI-related loss until a claim happens.

AI Insurance Is Unlikely to Go Standalone by 2028

Insurers essentially have four options to address AI risks:

· Clarify AI coverage within existing policies.

· Add AI-specific exclusions.

· Add AI endorsements.

· Create standalone AI insurance policies.

ScienceSoft researchers expect all four approaches to develop but predict that adapting existing commercial insurance products will remain the most common approach among midsize US insurers through 2028.

This means you will likely be able to rely on existing insurance products rather than purchase separate AI coverage. The critical part is making sure your policies actually address the AI risks your business faces and understanding any exclusions or coverage limitations that may apply.

AI Exclusions Could Become More Common

Notably, insurance companies are preparing ways to both cover AI risks and exclude them from coverage. ScienceSoft's report notes that, as of July 2026, more than 60 P&C insurance groups had filed AI-related exclusions with regulators.

Although filing an exclusion doesn’t mean an insurer will immediately use it, this is one reason you should avoid assuming that today's insurance policy will handle AI the same way several years from now. Policy language is likely to evolve as insurers collect more claims data and gain a better understanding of AI-related losses.

Your AI Use May Affect Your Insurance Costs and Terms

As a business owner, you should be aware that underwriting will likely change faster than coverage. ScienceSoft predicts that 60% to 80% of new policies and renewals in E&O, D&O, EPL, and cyber insurance will incorporate AI-related risks into underwriting by 2028.

In other words, insurers may start asking detailed questions about AI before they start offering dedicated AI insurance.

When applying for or renewing insurance, you should increasingly expect questions like:

· What AI platforms does your company use?

· What business functions use AI?

· Do employees receive AI training?

· Do you have a written AI use policy?

· Are AI-generated outputs reviewed by employees?

· How do you protect confidential data entered into AI systems?

· Do you evaluate third-party AI vendors?

· Do you document AI risk assessments?

· Who is responsible for AI governance?

The growing use of agentic AI systems, which can communicate with other systems, perform tasks, and make decisions, raises additional questions:

· What systems can AI agents access?

· Can they authorize transactions?

· Can they communicate directly with customers?

· Can they change business records?

· Can they make decisions without employee approval?

Your answers may directly influence premiums, deductibles, retentions, coverage limits, sublimits, exclusions, and risk control requirements.

"Shadow AI" May Create Coverage Gaps

“Shadow AI” occurs when employees use AI applications that the company has not approved or properly evaluated. For example, an employee could copy customer information, financial records, contracts, or other sensitive data into an unauthorized public AI tool without management realizing it.

That creates an obvious cybersecurity concern — and can also create an insurance concern.

Some emerging AI insurance products are already limiting coverage to approved AI systems or assessing AI controls before coverage is offered. For your business, this means the use of unapproved AI tools may create gaps in coverage for losses caused by those tools.

As underwriting becomes more sophisticated, you may increasingly need to know exactly which AI tools your employees are using.

Why AI Insurance Is Difficult for Insurers

Insurance companies face their own challenges when trying to price AI risk and cover AI-related losses.

A single AI use case may involve:

· A business using the technology.

· An AI software provider.

· An AI model provider.

· Data providers.

· Developers.

· Employees supervising the system.

· Business’ partners having access to its AI.

It can therefore be difficult to determine who is responsible for AI-related harm.

There is also concentration risk. Thousands of companies like yours may rely on the same AI model or software provider. A major failure could potentially affect many insured businesses simultaneously, pushing an insurer into million-dollar payouts.

Regulatory uncertainty is another factor that slows the development of AI insurance products.

ScienceSoft also notes that insurers’ growing use of AI for underwriting and policy servicing may create AI risks for insurers themselves — meaning they have to get their own AI right as they expand coverage for others.

What Business Owners Should Do Now

A reasonable starting point is to identify where your company uses or plans to use AI. Next, map the potential risks and review those uses against your existing insurance program. The goal is to understand which AI-related scenarios your existing policies may cover, which ones they may exclude, and where uncertainty remains.

The next smart move is to establish AI governance. This can help you address the AI control areas that may draw insurers' attention before they formally require them. It can also help you better manage and proactively respond to AI risks.

For a small or midsize business, practical controls might include:

· Maintaining a list of approved AI tools.

· Creating rules about what data employees can enter into AI systems.

· Training employees on acceptable AI use.

· Monitoring employee interactions with AI using dedicated tools.

· Documenting where AI is used in important business processes.

· Requiring human review of important AI-supported work.

· Establishing approval requirements before AI can make and act on decisions.

· Reviewing AI vendors before adoption.

Frequently Asked Questions

Do I need AI insurance if my employees use ChatGPT?

Not necessarily. Occasional use of generative AI doesn’t mean you need a standalone AI insurance policy. However, you should understand what your employees are using AI for, what data they are entering into those systems, and whether your existing insurance addresses the resulting exposures.

Can AI affect my business insurance premium?

Increasingly, it may. AI use and governance are expected to become common underwriting considerations in several commercial insurance lines through 2028, potentially affecting pricing, limits, retentions, sublimits, and coverage conditions.

What happens if an employee uses an unapproved AI tool?

That can create cybersecurity, privacy, compliance, and liability risks for your business. Depending on future policy wording, insurers may distinguish between approved AI systems and unauthorized "shadow AI."

Will I need to buy separate AI insurance?

Probably not in most cases — at least not immediately. Standalone AI insurance is unlikely to become mainstream by 2028. Instead, existing liability and cyber insurance products are more likely to evolve to address AI-related risks.

Review Your Business Insurance for Emerging AI Risks With Wexford Insurance

Whether your business is already using or planning to use AI, reviewing your current insurance program can help you understand where coverage may apply and where additional protection may be worth considering.