Global reinsurance brokerage Gallagher Re, in partnership with MIT and Testudo, has released a new white paper arguing that existing insurance frameworks are unable to cope with the risks posed by artificial intelligence (AI).
Gallagher Re said that as companies integrate AI systems into their daily operations, they are creating risk exposures beyond the scope of traditional insurance products. The company described a growing mismatch between risks arising from AI and currently available protections, leaving organizations vulnerable to protection gaps.
In the report, Smart Systems, Blind Spots: Rethinking Insurance in the Age of Artificial Intelligence, Gallagher Re provides guidance for insurers, brokers, reinsurers and risk professionals on how to respond to these developments. The company emphasized that the responsibilities associated with AI systems, including inaccurate or fabricated output, biased decision-making, model degradation over time, and flawed training data, are often not explicitly covered in standard policies.
Gallagher-Ray also noted that the legal and regulatory environment has changed, placing greater scrutiny on those deploying AI technologies. The company explained that responsibility is increasingly being assigned to operators rather than technology providers, whose contractual terms often limit their own risk. Gallagher Re said this dynamic could expose companies to significant unexpected risks.
The report explains that the risks associated with artificial intelligence are not entirely consistent with traditional insurance categories. Gallagher-Ray noted the limitations of policies such as cyber insurance, technical errors and omissions, product liability, and general liability, noting that these policies are not designed to address the specific ways in which AI systems may malfunction.
According to Gallagher Re, the insurance market is already starting to react, with the development of standalone AI products and revisions to policy endorsements. These initiatives are intended to provide clearer coverage definitions and address risks unique to AI deployments. However, the company stressed that further work is needed to ensure that policies correctly reflect the behavior and failure modes of AI systems, while complementing existing insurance product lines.
Gallagher Re also expressed concern that widespread use of artificial intelligence models could cause large-scale, interconnected losses. The company warned that failures in commonly adopted systems could trigger claims from multiple departments simultaneously, creating different aggregation challenges than those seen in traditional disaster events.
Ed Pocock, global head of cybersecurity at Gallagher Re, said: “Artificial intelligence is changing the way businesses operate, but
It also introduces a new class of risk that traditional insurance policies were never designed to address. This article provides a roadmap for insurers, brokers and corporates to address these challenges and develop solutions that reflect the reality of AI-driven liabilities. “
Freddie Scarratt, Global Deputy Head of Insurtech at Gallagher Re, commented: “The rapid adoption of AI has outstripped the insurance market’s ability to respond to the risks it creates. By working together, insurers, reinsurers and corporates can close the protection gap and ensure AI adoption is supported by robust risk management and insurance solutions.”
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