AI Is Changing Business. Is It Creating New Insurance Risks Too?
Artificial intelligence is no longer something reserved for big technology companies or futuristic movies. It's showing up in everyday business operations, from writing emails and creating marketing campaigns to managing customer service, processing payments, and analyzing financial information.
For business owners, AI can be an incredible time-saver. It can help a small company accomplish tasks that once required an entire team. But there's another side to this rapidly changing technology that deserves attention: AI is creating new risks for businesses, and some of those risks could have serious financial consequences.
Imagine receiving a phone call from what sounds exactly like your business partner, asking you to urgently transfer $25,000 to a vendor. The voice is familiar. The request sounds legitimate. There's just one problem: the person on the other end isn't your business partner. It's an AI-generated voice created by a scammer.
Scenarios like this are becoming increasingly realistic. As artificial intelligence becomes more sophisticated, businesses need to think beyond traditional risks and consider whether their insurance coverage is keeping up.
AI Is Making Business Easier, But Also More Vulnerable
Businesses of all sizes are finding creative ways to use artificial intelligence. Small businesses, in particular, are benefiting from tools that help them compete with larger organizations without hiring additional employees.
Some common business applications include:
- Writing marketing materials, newsletters, website content, and social media posts.
- Automating customer service through AI-powered chatbots.
- Analyzing customer information and business performance.
- Creating invoices, reports, presentations, and business documents.
- Improving scheduling, inventory management, and administrative tasks.
- Assisting with hiring, recruiting, and employee communications.
These tools can improve productivity and reduce operating expenses. However, every new technology introduces potential vulnerabilities. Employees may accidentally share confidential information with AI platforms, automated systems may make costly mistakes, and cybercriminals are using the same technology to create increasingly convincing scams.
The question isn't necessarily whether your business should use AI. It's whether you understand the risks that come along with it.
Deepfake Scams: When Seeing and Hearing Isn't Believing
One of the most concerning developments involving artificial intelligence is the rise of deepfake technology. Criminals can use AI to imitate someone's voice, create realistic videos, or impersonate business owners, executives, employees, and customers.
Think about how your business handles financial transactions. Would your accounting department question a phone call from the company owner requesting an urgent payment? What if the caller sounded exactly like the owner and knew details about an upcoming transaction?
AI-generated impersonation scams can make fraudulent requests appear legitimate. Businesses may face several types of threats:
- Fake executive requests: Criminals impersonate company leadership to authorize fraudulent wire transfers.
- Vendor impersonation: Scammers pose as trusted suppliers and request payment to a different bank account.
- Employee impersonation: Fraudsters use cloned voices or identities to obtain sensitive company information.
- Fake customer communications: AI-generated messages are used to manipulate employees into sharing confidential information.
Even a well-run business with experienced employees can become a target. A single convincing phone call or email could result in a substantial financial loss.
Cyber Liability Insurance Is Becoming More Important
Cyberattacks aren't limited to large corporations. Small businesses are attractive targets because they often have valuable customer information but fewer resources dedicated to cybersecurity.
AI is making it easier for criminals to create sophisticated phishing emails, develop malicious software, impersonate trusted contacts, and identify weaknesses in business systems.
A cyberattack could expose customer information, interrupt business operations, compromise financial records, or result in expensive legal and recovery costs.
Cyber liability insurance may help cover certain expenses associated with a covered cyber incident, including:
- Data breach response and notification expenses.
- Computer system investigation and data recovery.
- Legal expenses and certain regulatory response costs.
- Customer notification and credit monitoring services.
- Business interruption losses resulting from covered cyber events.
- Cyber extortion and ransomware response expenses, when covered by the policy.
Coverage varies significantly between insurance companies and policies. Some policies also include social engineering or fraudulent transfer coverage, but these protections may require specific endorsements and have separate limits, conditions, or exclusions.
It's important to understand that a standard business insurance policy or general liability policy may not cover many cyber-related losses.
What Happens When AI Makes a Costly Mistake?
Here's another risk business owners may not have considered: What happens when artificial intelligence provides incorrect information or produces something that causes financial harm?
Imagine a marketing agency using AI to create advertising materials. The system generates content that unintentionally infringes on another company's intellectual property. The business receives a legal demand and suddenly faces an expensive dispute.
Or consider a professional services company that relies on AI-generated research or recommendations. An employee fails to verify the information, a client relies on the inaccurate advice, and the company faces a claim alleging financial damages.
Depending on the circumstances, these situations could raise questions involving professional liability (errors and omissions) insurance, media liability, intellectual property rights, or other business coverage.
However, insurance coverage isn't automatic just because AI was involved. Policy wording, exclusions, the nature of the alleged wrongdoing, and the type of business all matter.
Does Your Existing Business Insurance Cover AI-Related Risks?
This is where things get interesting. Many businesses already carry general liability, commercial property, professional liability, and business owners policies. But these policies weren't necessarily designed with today's AI technology in mind.
Depending on how your company uses artificial intelligence, it may be worth reviewing several types of business insurance:
| Type of Insurance | Potential Protection |
|---|---|
| Cyber Liability | Certain data breaches, cyberattacks, and covered digital security incidents. |
| Technology Errors & Omissions | Certain claims involving technology services, software, and professional mistakes. |
| Professional Liability | Certain claims alleging negligence, errors, or omissions in professional services. |
| Commercial Crime | Certain employee theft, fraud, and other covered financial crimes. |
| General Liability | Certain third-party bodily injury, property damage, and personal or advertising injury claims. |
Keep in mind that these policies are not interchangeable, and coverage depends on the specific policy language. For example, a fraudulent wire transfer may not be covered under cyber insurance unless the appropriate social engineering or funds transfer protection is included.
Taking the time to review your coverage before something happens is much easier than trying to figure out what is covered after a claim.
Five Ways to Protect Your Business From AI-Related Risks
You don't have to stop using artificial intelligence to protect your company. Instead, establish some basic safeguards to help prevent problems before they occur.
Here are five practical steps worth considering:
- Verify financial requests. Require a second form of verification before transferring money or changing vendor payment information. Never rely solely on an email, phone call, or voice message.
- Train your employees. Teach staff how to recognize phishing attempts, deepfake impersonations, suspicious links, and unusual requests.
- Protect confidential information. Establish rules about what customer, employee, and financial information can be entered into AI tools.
- Use strong cybersecurity practices. Enable multifactor authentication, maintain software updates, restrict access to sensitive systems, and regularly back up important data.
- Review your business insurance. Talk with your insurance professional about cyber liability, social engineering, professional liability, and other coverage that may apply to your operations.
The Bottom Line: Technology Changes, But Protecting Your Business Still Matters
Artificial intelligence is creating exciting opportunities for businesses, and there's no doubt it will continue changing the way companies operate. But with those opportunities come new responsibilities and risks that business owners can't afford to ignore.
Whether you operate a small retail shop, manage a professional services firm, run a contracting business, or own a growing company, it's worth asking whether your current business insurance reflects the way you operate today.
At Kerry Jordan Insurance Agency, we understand that running a business comes with enough challenges without worrying about unexpected insurance gaps. We can help you review your existing business insurance, discuss potential exposures, and explore coverage options that make sense for your company's needs.
Is Your Business Ready for the Next Generation of Risks?
Don't wait until a cyberattack, fraudulent transaction, or unexpected liability claim puts your business at risk. A conversation today could help you identify potential gaps before they become expensive problems.
Contact Kerry Jordan Insurance Agency at 651-209-3535 to review your commercial insurance coverage and discuss ways to protect your business as technology continues to evolve.
Your business is evolving. Make sure your insurance protection evolves with it!