Artificial intelligence (AI) is rapidly changing, leading to improved efficiency and automation for businesses worldwide, including Hawaiʻi. However, many AI technologies, most still in their early stages, can create some challenges and risks.
Knowing what these risks are and how the right insurance coverage can protect your organization, can help your business avoid legal, reputational, and financial damage relating to AI.
How is AI Impacting Modern Businesses?
The emergence of artificial intelligence in Hawaiʻi has many local business owners concerned about its implications. AI has the potential to benefit every industry in a positive way; however, the technology also presents certain risks.
Benefits
AI tools can help businesses make affordable improvements when it comes to efficiency, customer service, cost savings, and growth opportunities. For example, AI can improve accounting processes by automating bookkeeping tasks.
Some can also help with data analysis for cash flow forecasting and to catch possible errors. And, chatbots can now simulate human conversation and can assist businesses in providing prompt customer service.
Risks
There are some concerns relating to AI, particularly with compliance. Laws are in place that regulate the use of AI systems due to their potential impact on safety and personal privacy. To stay compliant with these laws, businesses must understand the relevant laws in their jurisdiction.
In the U.S., consumer data privacy is generally protected through the Federal Trade Commission (FTC), which is primarily responsible for protecting consumers against deceptive or unfair business practices.
There is currently an ongoing investigation of ChatGPT and OpenAI which will set the foundation for how businesses gather, use, and share consumer data.
Laws
Hawaiʻi is also in the process of implementing its own AI laws. The state currently has two bills in negotiations, HB 2176 HD1 and SB 2572, otherwise referred to as the Artificial Intelligence Safety & Regulation Act. These bills focus on balancing innovation and ethical considerations regarding the use of AI.
What Types of Coverage Is Needed for AI Risks?
Several popular commercial insurance policies are available to help address AI concerns and close potential gaps in existing coverages. Some of these policies include the following:
Cyber Liability
One of the first lines of defense when attempting to protect against AI-related risks is being covered by a cyber policy. Cyber liability policies vary but typically cover first-party digital asset loss, third-party liability for data breaches, and almost everything in between.
For example, cybercriminals can perform phishing scams to solicit sensitive information from unsuspecting employees or commit malicious attacks on physical servers to gather private customer data, such as credit card numbers. Cyber liability can help cover these events.
When shopping for a cyber liability policy, carefully read the terms to look for potential exclusions that could limit coverage for AI risks.
Some policies exclude coverage for contractual liability, which may prove important for businesses that assume AI-related liability through contractual indemnity agreements.
This means that if a business agrees to indemnify a third party for losses related to the performance of an AI system, such as defects in software, coverage could be denied.
Professional Liability
Professional liability insurance provides coverage to protect against claims of negligence filed by customers or clients. It generally covers personal injury, copyright infringement, and other damages caused by things that the business did or should have done.
Some professional liability policies also cover claims for breach of intellectual property rights (IPR) and AI-generated advice. For example, a business that uses a chatbot to provide automatic customer service may discover that customers are being treated unfairly as the bot’s training data contains discriminatory or biased patterns.
Crime
Crime insurance provides businesses with coverage for a range of criminal acts, such as forgery, theft, and computer fraud. While this type of insurance often relates to traditional crimes, such as employee embezzlement, it may also cover modern crimes associated with the use of AI.
Disgruntled employees who sabotage AI technology, resulting in financial losses for the business, may be covered by a crime policy. However, the business must first prove that a crime or dishonest act has taken place through the manipulation of the AI system.
Errors & Omissions
Technology errors and omissions (E&O) insurance policies provide businesses with coverage for third-party claims that allege an error, omission, or wrongful act in relation to technology service performance. Unlike a cyber liability policy, a technology E&O policy typically provides coverage for breach of contract claims.
However, there are some limitations to technology E&O insurance. For example, these policies generally exclude coverage for liabilities that result from property damage or bodily injury.
General Liability
Commercial general liability (CGL) insurance provides coverage for third-party claims that allege property damage or bodily injury. Some intellectual property risks associated with AI may be covered by CGL policies.
In recent years, many CGL policies have evolved to assist policyholders with claims that allege property damage or bodily injury caused by the licensing, selling, or furnishing of certain computer software.
This means that a general liability policy may help cover liability claims that result from selling AI-powered software products or services.
Protect Your Business from AI Risks with Atlas Insurance
As artificial intelligence risks become more frequent, many businesses are protecting themselves and their customers. Since 1929, Atlas Insurance Agency has proudly provided local businesses in Hawaiʻi with the coverage needed to address their risks.
Our agents now offer a range of business policies to cover the hazards posed by AI technology. Contact Atlas Insurance, with multiple island locations, at (808) 400-6634 to see how we can help protect your business.