2026-09-07 · Source: Insurance News Australia
Summary in 3 Points • Insurers are reassessing AI exposures and withdrawing coverage due to liability uncertainties • AI failures have led to legal and financial repercussions, highlighting liability challenges • US insurers are excluding AI risks from standard policies, with Australia starting to follow --- The insurance industry is grappling with the challenge of underwriting AI risks, as the rapid pace of AI development outstrips the ability to govern and manage it effectively. Insurers are increasingly cautious about AI exposures, with some withdrawing coverage due to uncertainties around liability and the potential for systemic losses. Legal cases have already arisen from AI failures, such as fabricated outputs and autonomous actions, complicating the liability landscape. In response, US insurers are moving to exclude AI risks from standard policies, with state regulators approving a significant number of these requests. Australia is beginning to see similar exclusions, as insurers and regulators focus on AI governance failures.
For the London insurance market, the shifting market of AI liability presents both challenges and opportunities. Underwriters may need to develop new products or endorsements specifically tailored to AI risks, considering the potential for systemic losses and unclear liability chains. Policy wording will need to be carefully crafted to address the unique aspects of AI, such as non-deterministic behaviour and model drift. Pricing these risks could prove difficult due to their highly correlated nature, requiring innovative approaches to risk assessment and diversification. The market may also see increased demand for specialised coverage as businesses seek protection against AI-related liabilities.