Exploring AI liability insurance: New protections for fast-evolving business risks

Learn how the growing wave of AI-related law cases is driving the need for specialist insurance coverage that protects business innovators.

As artificial intelligence (AI) becomes an integral part of how organisations operate, so too do the risks associated with its use. From hallucinations and copyright infringement to algorithmic bias and privacy breaches, the potential liabilities are evolving rapidly – and few companies are fully prepared.

In this article, we explore the emerging landscape of AI-related risks, share examples of how these risks are already playing out in real-world scenarios, and explain how Costero Brokers is helping insurers, brokers and businesses globally stay ahead of the curve with custom-built AI liability insurance programmes.

AI business liability in the news

Several recent high-profile cases illustrate the harmful business impacts that AI-related liabilities can cause. A particularly topical example involves Facebook parent company Meta, which is facing legal action for allegedly training its AI models on pirated digital books – effectively breaching the copyrights of thousands of authors. If the case is successful, this could lead to substantial financial penalties and reputational damage. (Source: BBC News)

An important and long-running law case over AI liability is the litigation by Thomson Reuters against AI startup Ross Intelligence, over alleged training of an Ai model with unlicensed content from the Westlaw legal database. Running since 2020, this case has marked an early and significant legal challenge over how AI systems use copyrighted material – and has become a key precursor to today’s broader legal cases brought against companies that develop and use AI systems. (Source: Skadden Legal News)

As AI has moved into the business mainstream over the last few years, dozens of other legal cases have been filed in the US and worldwide over liabilities from the development, training and usage of AI. The outcome of these cases could reshape copyright law, redefine the boundaries of fair use in AI training, and have major implications for the future of AI across all industries and business sectors. (Source: Wired)

The evolving business insurance landscape of AI risk

Whether an organisation today is buying, customising, or developing AI systems, the adoption of AI introduces a new spectrum of risks – some familiar, many entirely unprecedented – requiring a new insurance approach. These risks include:

• Performance failures: Where an AI system fails to deliver accurate or reliable outputs, potentially causing financial loss or operational disruption.
• Bias and discrimination: Inadvertent algorithmic bias could lead to discriminatory outcomes in hiring, lending, or healthcare decisions, attracting regulatory scrutiny and legal action.
• Privacy breaches: AI models trained on sensitive or unprotected data can expose personally identifiable information (PII), creating compliance liabilities.
• Intellectual property (IP) infringement: Generative AI models may produce content that closely resembles protected works, risking claims of copyright violation.
• Hallucinations and misinformation: Especially in large language models (LLMs), outputs may appear plausible but be factually incorrect—undermining trust and exposing businesses to reputational or legal consequences.

The complexity and uncertainty around these risks can create gaps in traditional insurance coverage, making it essential to work with experts who understand how to navigate and mitigate them.

Insurance solutions built for AI risks

Generic or traditional business insurance policies often fall short of covering AI-related liabilities. This is why new specialist AI liability insurance is increasingly important.

Costero’s AI insurance solutions, developed in partnership with leading global reinsurers, address the unique risk categories associated with AI, including:

• Performance guarantees: Ensuring that an AI solution performs as promised. If underperformance occurs, policyholders are compensated based on agreed thresholds.
• Own damages insurance: Covers financial loss due to underperformance of internally developed AI systems—protecting against business interruption, reputational damage, or increased operational costs.
• Legal liability coverage: Insures against third-party claims arising from biased outputs, IP infringement, data privacy violations, and more.

These covers are carefully crafted to match each client’s specific AI risk profile, with pricing models that evolve alongside exposure.

Finding the right partner for AI liability protection

As a specialist in insurance for technology, cyber and media, Costero offers insurers, brokers and businesses access to expert support in navigating the evolving risks of AI. Our AI liability insurance programmes deliver a range of major benefits and advantages, being:

• Custom-built: We don’t deal in standard templates for business cover. Every policy is individually negotiated to ensure it addresses your client’s exact exposure.
• Globally connected: Through our access to Lloyd’s of London and international markets, we provide fit-for-purpose and competitively priced cover from leading global reinsurers.
• Technically informed: We work with AI-specialist underwriters and actuaries who understand the specific risks associated with different AI model architectures – from foundation models to fine-tuned systems.
• Future-ready: As AI regulation and litigation evolve, so too do our coverage options. We continuously update our programmes to reflect the latest risk, legal and technological developments.

Whether you’re an insurer looking to build new AI-focused capacity, a broker looking for a trusted wholesale partner, or an organisation seeking protection for your in-house AI models and usage, we have the expertise to help you stay ahead of the curve.

Let’s talk about your AI liability insurance needs

AI brings immense business potential – but also unprecedented risks. Whether an organisation builds AI, deploys it, or simply relies on it, insurance needs to keep up. Don’t leave your business or clients exposed to liabilities that traditional policies were never designed to handle.

Talk to Costero to create an AI liability insurance programme designed around your unique needs. Our solutions empower organisations to confidently adopt AI and maximise its benefits – without suffering the potential negative impacts.

To learn more about our AI, cyber, media and technology insurance solutions and discuss your goals, please get in touch with our expert Jonathan Olley at Costero Brokers.