Global reinsurance giant Munich Re has highlighted how AI exposures within traditional insurance policies possess the ability to become a significant unexpected risk to insurers’ portfolios.
This comes as the industry evaluates how to transfer capabilities in insuring traditional machine learning models to generative AI (GenAI) applications.
A recent whitepaper released by the reinsurer explains how AI risks are usually excluded in traditional insurance policies, meaning that the damage that AI models can cause could wind up being covered by traditional insurance policies.
Some examples that Munich Re highlights include, AI-based machinery injuring bystanders, which could be covered by existing general liability policies, as well as AI models that are hacked, which could be covered by existing cyber insurance policies.
An alarming example that the reinsurer also gives is that AI-based cleaning robots could potentially destroy a property, which could wind up being covered by existing property insurance policies.
In addition, AI models that make biased employment decisions could also be covered by existing EPLI policies, Munich Re stated.
Moreover, due to the fact that AI technology is impacting practically all aspects of life, there is a lot of partial coverage from existing insurance policies, which is ultimately making it difficult for both insurer and insured to have full confidence on the extent of the coverage – potentially leading to over- or underinsurance, Munich Re warns.
A worrying factor to highlight, is that the overall lack of conclusiveness on the extent of the coverage could lead to devastating effects for insurers.
In addition, AI exposures within traditional insurance policies could also represent a major unexpected risk to insurers’ portfolios. This could be due to the risks of AI underperforming, not being considered throughout the pricing stages of the insurance.
Munich Re states that when using AI technology, insureds need be aware of potential insurance gaps, that leave them exposed to risks caused by their AI models.
In a report released last year from Moody’s Investors Service, analysts highlighted how the insurance industry’s widened use of data and analytics positions it well for AI productivity gains, as many different companies have been gradually leveraging AI technology for a number of years.
Re/insurance broker Aon also examined how the insurance market’s overall understanding of Gen AI-related risk is still within it’s earlier stages.
The company noted that this developing form of the technology is expected to impact many different lines within the sector, such as Technology Errors and Omissions / Cyber, Professional Liability, Media Liability, Employment Practices Liability, and more.