Navigating the Uncertainties: Underwriting in the Era of Artificial Intelligence

In the ever-evolving landscape of technology and risk, the emergence of artificial intelligence (AI) presents a myriad of challenges for underwriters. As highlighted in discussions at The Professional Liability Underwriting Society’s 2024 cyber symposium in New York City, the complexities surrounding AI have left underwriters grappling with more questions than answers, hindering their foray into this domain and creating a fog of uncertainty.

Garrett Droege, Director of Innovation and Digital Risk Practice Leader at IMA, aptly noted that while AI is not a novel concept, its recent advancements, particularly in generative AI, have outpaced the insurance industry’s ability to adapt. Droege lamented the industry’s failure to proactively build models around AI’s potential impacts on risk profiles, emphasizing the need for comprehensive coverage tailored to AI-related liabilities.

One of the central issues confounding underwriters is the delineation of AI risks between cyber and technology errors and omissions (E&O) policies. Droege highlighted the blurred lines between these categories, underscoring the challenge of discerning whether a given incident warrants a cyber claim, a tech E&O claim, or both. Jeff Kulikowski, Executive Vice President at Westfield Pro, echoed these sentiments, emphasizing the nuanced distinctions between companies that utilize technology for their services and those that provide technology services, urging for a more granular understanding of operational models to accurately assess exposures.

However, the task of underwriting AI risks extends beyond policy classification. Meghan McEvoy, Vice President and Cyber and E&O Broker at Aon, emphasized the importance of ethical considerations and regulatory compliance in AI adoption. As AI permeates various sectors, understanding not only how it is used but also the ethical frameworks governing its deployment becomes imperative for mitigating potential liabilities.

Moreover, the inherent complexities of AI raise profound questions about accountability and liability. Droege highlighted scenarios where AI-generated code leads to data breaches, blurring the lines of responsibility between AI developers and software companies. Similarly, the advent of deepfake technology poses formidable challenges, where traditional methods of verification falter in the face of AI-manipulated audio and video streams. Droege proposed blockchain technology as a potential solution, offering a decentralized ledger to validate identities and uphold the integrity of digital information.

Despite the pervasive uncertainties surrounding AI, Kulikowski cautioned against succumbing to panic, advocating for a methodical approach to risk assessment. While AI represents a burgeoning exposure class, he emphasized the need for industry-wide collaboration to delineate its risks comprehensively.

However, as the pace of technological innovation accelerates, Droege stressed the urgency for underwriters to overcome their reluctance and engage with emerging risks head-on. With AI poised to revolutionize industries and reshape risk landscapes, proactive underwriting is imperative to safeguard businesses against potential liabilities.

The journey into AI underwriting is fraught with challenges, yet it presents unparalleled opportunities for innovation and risk management. By embracing a nuanced understanding of AI risks, prioritizing ethical considerations, and fostering industry collaboration, underwriters can navigate the complexities of AI with confidence, ensuring robust protection for businesses in the digital age. As we stand on the cusp of a new era defined by artificial intelligence, it is incumbent upon underwriters to rise to the occasion and forge a path towards a more resilient and adaptive insurance ecosystem.