Gallagher Re: AI Liability Emerging as New Risk Category for Insurance Industry

Gallagher Re's Global InsurTech Report: Artificial Intelligence—Risks and Opportunities in (Re)insurance and Beyond: Q1—Digital Risks examines how the rapid adoption of artificial intelligence (AI) is creating new liability exposures for businesses and driving changes in insurance products and underwriting. According to the report, AI-related risks are becoming increasingly significant as organizations integrate the technology into core business operations while insurers adapt to address emerging coverage needs.

The report identifies AI liability insurance as an emerging area designed to protect businesses from financial losses associated with AI systems. According to Gallagher Re, potential exposures include algorithmic bias, discrimination claims, inaccurate or misleading outputs, unauthorized use of data or intellectual property, regulatory penalties, and legal defense costs stemming from AI-related failures. As AI adoption expands across industries, the report says demand for specialized liability coverage is expected to grow alongside it.

Gallagher Re also highlights the importance of data quality and governance in managing AI risk. Per the report, organizations face decisions about whether to develop proprietary AI tools or rely on third-party platforms, with each approach presenting different liability considerations. The report notes that effective oversight, testing, and governance are essential because AI systems involved in underwriting, claims processing, or other insurance functions can introduce legal, operational, and reputational risks if left unchecked.

One of the report's central themes is the emergence of what it describes as "silent AI" exposure, drawing comparisons to the insurance industry's earlier experience with "silent cyber." According to the report, existing general liability, professional liability, and product liability policies may unintentionally respond to AI-related claims because many policies were written before widespread AI adoption and were not designed or priced to address these risks. Gallagher Re warns that this could create underwriting challenges as AI becomes more deeply embedded in business operations.

The report suggests insurers are already beginning to respond. According to Gallagher Re's AI Adoption and Risk Survey, one in five insurance professionals said a client had experienced an AI-related loss or claim during the previous year, while just over half of those losses were fully covered by insurance. The survey found cyber liability, product liability, employment practices liability, professional indemnity, directors and officers liability, and errors and omissions coverage among the lines expected to experience AI-related claims.

Gallagher Re also found that insurers expect to address emerging AI exposures through a combination of new products and revised policy language. Per the report, respondents most frequently anticipated new AI-specific policies and specialized endorsements, followed by AI-specific coverage wording, updated renewal questionnaires, AI-related exclusions, and greater emphasis on AI governance and risk management during the underwriting process. The report also notes that more than 200 active legal cases involving AI and machine learning are contributing to the evolution of liability coverage.

Looking ahead, Gallagher Re believes AI liability may follow a path similar to cyber insurance as litigation, claims experience, and underwriting practices mature. According to the report, AI liability products could initially develop alongside cyber insurance before evolving into a broader category of digital risks encompassing AI, cyber, and other technology-driven exposures. The report adds that the industry's response to increasingly interconnected digital risks will play a significant role in shaping the future insurance landscape.

The report also highlights continued investment in AI-focused insurance technology. According to Gallagher Re, 95.2 percent of global InsurTech funding in the first quarter of 2026 went to AI-focused companies, reflecting ongoing market interest in technologies designed to address emerging digital risks and support the evolving insurance sector.