KYND, a cyber risk intelligence provider that helps businesses and insurers understand and manage cyber risks, warns that as organizations introduce artificial intelligence tools without always disclosing their use, insurers could accumulate hidden AI-related risks in their portfolios.
In its latest white paper, The Wild West of AI Risks, KYND says the immediate challenge for the insurance industry is to develop a clearer understanding of where and how AI will be used, rather than focusing solely on future policy responses.
KYND said effective underwriting depends on visibility into customers’ use of technology, but the pace of AI adoption means some organizations may not integrate AI into their operations before discussing it with insurers. The company said this could create unexplained exposures at the underwriting stage that could trickle out across multiple policies and lead to broader cumulative risk.
Aaron Aanenson, head of North America Insurance at KYND, commented: “Many organizations are embedding artificial intelligence into daily business processes, but this is not always reflected in underwriting conversations.
“Insurers should not just focus on the placement of AI in policy wording, but should prioritize the visibility of AI adoption across their portfolios. Claims related to AI are already occurring, so understanding these risks before a claim occurs is critical to effectively assess and price risk.
“Without this visibility, insurers are exposed to hidden accumulation risk, especially where multiple policyholders rely on the same underlying AI platform or model. Identifying these concentrations early will be key to building more resilient portfolios.”
KYND said the scale of the challenge is highlighted by the widespread use of AI tools, including ChatGPT, with 77% of organizations currently using the platform. The company warned that the insurance market could face a similar problem to “silent cyber”, where cyber risks accumulate in policies before insurers fully realize their scope and impact.
The white paper also highlights that AI-related disputes have emerged, including cases involving unreliable output, copyright issues and accusations of bias. However, KYND said insurers continue to face uncertainty due to limited historical claims data, making it more difficult to assess the potential long-term impact of AI-related risks.
A spokesman for the specialist cyber MGA added: “I think the only thing the industry is insisting on is excluding AI from areas it doesn’t want to touch. In the US you’ve seen a lot of general liability and ISO forms introducing AI exclusions – very similar to what they did when cyber became a thing, excluding general liability. What we haven’t quite figured out yet is E&O and cyberspace: how does it fit in, what actually triggers that.”
Insurers will need to gain a deeper understanding of the adoption of AI in their portfolios to identify potential risk concentrations, improve risk assessments and develop more effective ways to underwrite AI-related risks, KYND said.
