AI: Insurance, business and liability considerations
Although there are benefits to the growing use of artificial intelligence, it can create new risks for businesses.
As technology has evolved, artificial intelligence (AI) has grown into an asset used in countless ways — from walking into a room and asking a virtual assistant to turn on the lights to having a car steer on its own.
However, AI can present additional risk for businesses, and from an insurance perspective, it raises questions about liability. Therefore, it is essential that businesses make sure they have the right protection. Sophistication is paramount, and there are a lot of unknowns when it comes to figuring out liability and insurance coverage.
How is artificial intelligence used?
Different industries use artificial intelligence in a variety of ways. For example, many shipping companies uses AI GPS tools to create more efficient routes for drivers and algorithms to provide more accurate estimates of when a package will get delivered after it leaves its destination. Some life science companies are also using artificial intelligence to help speed up the completion time of studies and literature review, and some car manufacturers are using AI to help advance self-driving projects.
How is artificial intelligence used in insurance?
As business and industry have evolved with AI, insurers have started using artificial intelligence to provide more accurate pricing. This is especially important for mid- to large-size businesses because as companies increase in size, their risk exposure also dramatically increases. In addition, when it comes to middle and large commercial enterprises, there can be distinct or unique risks that can make it more challenging to streamline the underwriting process.
For example, it is not uncommon for mid- to large-size businesses to have tens or even hundreds of locations. Sending someone to each location to evaluate risk exposures to determine insurance cost is unrealistic. This is when aerial imagery comes in handy. One way The Hartford is using artificial intelligence to evaluate risk in mid- to large-size businesses. The insurer incorporates AI with aerial photos to identify the condition of a roof and make recommendations for the business should repairs need to be made.
The risks of artificial intelligence
Although there are benefits to artificial intelligence, it can create new risks for businesses. One of the biggest risks has to do with privacy right. There are certain use cases of AI that may operate without express consumer consent, and others that may identify personal traits or interests with impact to the consumer. These privacy considerations effect how AI technology is deployed and have led to scrutiny from regulators, lawmakers and end users.
Artificial intelligence and insurance liability
Depending on how a company uses artificial intelligence with its products or services, liability can be difficult to identify. Some car companies are using artificial intelligence to help advance driver-assistance technology. With AI, certain cars can steer and drive within lane lines on their own, read speed limit signs, know when to apply emergency braking to try to reduce damage from a collision, and alert drivers not paying attention. However, the question may arise regarding who is liable if someone were using one of these features and got into an accident.
Since traditional product liability is based on tort liability. When it comes to AI, the liability may result from a product’s design. For example, was there an error in how the software was supposed to work? Due to this uncertainty, underwriting insurance coverage can get complicated.
Insurers look at what kind of product liability risks are present without any smart features, and that information is then compared to any risks that may be present after adding in artificial intelligence. Then Insurers look at the increased risk after adding in the AI. Because AI adds more capability and the risk scenarios change significantly, insurers must evaluate a wider spectrum of risk.
Insurance considerations for artificial intelligence
Because of the uncertainty with how much a business’ risk can increase from using artificial intelligence, companies should review their existing insurance coverage to make sure they have enough protection. Some policies for companies to review or consider purchasing include liability insurance, commercial auto insurance, and global insurance.
The use of artificial intelligence can also affect a company’s business income valuation and the coverage limit chosen. Income streams that are augmented by AI can be interrupted by the loss of data or connectivity. Understanding how income is affected by an interruption and the potential for such an interruption is essential to determine an adequate business income limit. Since every business is unique and usage of artificial intelligence varies, businesses should work with an agent or broker to make sure they have the right coverage.
The future of artificial intelligence
Decades ago, the idea of a virtual assistant reading and replying to messages or having a computer analyze an image to determine the condition of a roof seemed unlikely. As time has passed, artificial intelligence has become more sophisticated and valuable to different businesses. Today, car companies are working toward autonomous vehicles, and hospitals and health care systems are potentially using artificial intelligence to help with diagnosis and advanced treatment plans. Insurers are also pairing artificial intelligence with connected devices, or the Internet of Things (IoT), to reduce losses. This includes using water sensors to turn off a water supply or send an alert if it detects a leak, possibly saving thousands of dollars in loss avoidance. With this said, AI will continue to evolve and can be a valuable feature for businesses — and ultimately customers and clients.
Jim Charron (James.Charron@thehartford.com) is the director of underwriting for The Hartford’s Technology Industry Practice. Brad John (Bradley.John@thehartford.com) is The Hartford’s Life Sciences Industry Practice Lead. And Matt King (Matthew.King@thehartford.com) is the Vice President of Data Science for The Hartford’s Middle & Large Commercial business segment.
The article is published with permission from The Hartford and may not be reproduced.
The information provided in these materials is intended to be general and advisory in nature. It shall not be considered legal advice. The Hartford does not warrant that the implementation of any view or recommendation contained herein will: (i) result in the elimination of any unsafe conditions at your business locations or with respect to your business operations; or (ii) be an appropriate legal or business practice. The Hartford assumes no responsibility for the control or correction of hazards or legal compliance with respect to your business practices, and the views and recommendations contained herein shall not constitute our undertaking, on your behalf or for the benefit of others, to determine or warrant that your business premises, locations or operations are safe or healthful, or are in compliance with any law, rule or regulation. Readers seeking to resolve specific safety, legal or business issues or concerns related to the information provided in these materials should consult their safety consultant, attorney or business advisors. All information and representations herein are as of February 2022.
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