Gallagher Re, the global reinsurance broker, has released a new white paper in partnership with Massachusetts Institute of Technology and Testudo stating that existing insurance frameworks are not equipped to deal with risks arising from artificial intelligence (AI).
Gallagher Re states that as businesses integrate AI systems into everyday operations, they are creating exposures that fall outside the scope of conventional insurance products. The firm describes a growing mismatch between the risks generated by AI and the protection currently available, leaving organisations vulnerable to gaps in cover.
In the report, Smart Systems, Blind Spots: Rethinking Insurance for the AI Era, Gallagher Re sets out guidance for insurers, brokers, reinsurers and risk professionals on how to respond to these developments. The company highlights that liabilities linked to AI systems, including inaccurate or fabricated outputs, biased decision-making, model degradation over time and flawed training data, are often not clearly covered under standard policies.
Gallagher Re also notes a shift in the legal and regulatory environment, with greater scrutiny being placed on those deploying AI technologies. The firm explains that liability is increasingly being assigned to operators rather than technology providers, whose contractual terms frequently restrict their own exposure. This dynamic, Gallagher Re says, can leave companies carrying significant unanticipated risk.
The report explains that AI-related exposures do not align neatly with traditional insurance categories. Gallagher Re points to limitations in policies such as cyber insurance, technology errors and omissions, product liability and general liability, stating that these were not designed to address the specific ways in which AI systems can fail.
According to Gallagher Re, the insurance market is beginning to respond, with the development of standalone AI-focused products and revised policy endorsements. These initiatives aim to provide clearer definitions of coverage and address risks unique to AI deployment. However, the firm stresses that further work is needed to ensure policies properly reflect the behaviour and failure patterns of AI systems while complementing existing lines of insurance.
Gallagher Re also raises concerns about the potential for large-scale, interconnected losses linked to widely used AI models. The firm warns that faults in commonly adopted systems could trigger claims across multiple sectors simultaneously, presenting aggregation challenges distinct from those seen in traditional catastrophe events.
Ed Pocock, Global Head of Cyber Security at Gallagher Re, said: “AI is transforming the way businesses operate, but
it also introduces a new class of risks that traditional insurance policies were never designed to address. This paper provides a roadmap for insurers, brokers, and enterprises to navigate these challenges and develop solutions that reflect the realities of AI-driven liabilities.”
Freddie Scarratt, Deputy Global Head of InsurTech at Gallagher Re, commented: “The rapid adoption of AI has outpaced the insurance market’s ability to respond to the risks it creates. By working together, insurers, reinsurers, and enterprises can close the protection gap and ensure that AI adoption is underpinned by robust risk management and insurance solutions.”
