Artificial intelligence isn’t just changing how we work—it’s reshaping the risks organizations face. From boardrooms to HR departments, AI is creating Executive Risk exposures that can lead to lawsuits, regulatory action, and material first-party losses. Here’s a look at emerging risks, how Executive Risk policies can respond, and why partnering with an insurance broker who understands coverage nuances is critical.
Directors and Officers Liability
Directors and Officers (D&O) Liability is front and center. D&O insurance isn’t just for public companies—private businesses face similar risks that could result in leadership being held personally liable. Failure to implement robust AI oversight could lead to regulatory actions, shareholder litigation, and allegations from customers. Leadership is expected to oversee AI strategy, and missteps can be costly.
Overstating AI capabilities—what regulators call “AI washing”—can trigger shareholder suits, and the SEC has warned that exaggerated AI statements may qualify as securities fraud. Deployment and implementation of artificial intelligence can also lead to governance claims. A major retailer learned this the hard way when an AI pricing tool malfunctioned, causing $100 million in losses and sparking questions about board oversight.
D&O policies typically cover mismanagement and misleading statements, but insurers may raise questions about AI governance and vendor oversight. One D&O market has introduced exclusions for AI-related exposures, including an “absolute” exclusion for any use or development of AI. Fortunately, this exclusion is not market standard. Both the preamble and the “use of AI” exclusion raise concerns and could result in what may be illusory D&O coverage.
Errors and Omissions
Errors and Omissions (E&O) exposures are also climbing. Professional firms rely on AI for speed and insights, but when algorithms misfire, the consequences can be catastrophic.
Incorrect outputs, copyright misuse from unlicensed training data, and overreliance on automation can lead to claims. A financial advisory firm faced $40 million in losses after its AI risk model misclassified portfolios, and a law firm was sanctioned for fabricated AI-generated citations. E&O insurance generally responds to professional negligence, but carriers expect documented model governance and human validation.
Employment Practices Liability
Employment Practices Liability is also feeling the impact. AI-driven hiring tools can unintentionally discriminate, creating litigation risk. Regulators are cracking down, and settlements are climbing. One Fortune 500 company paid millions after its resume filter excluded female engineers, and investigations have revealed algorithms that reject older candidates at alarming rates. EPL policies respond to discrimination claims, but insurers increasingly want to see fairness audits and vendor controls.
Fiduciary Liability
Fiduciary Liability is another area where AI introduces complexity. Plan sponsors and administrators are using AI for participant engagement and investment modeling, but when these tools give bad guidance or enable fraud, fiduciary breach allegations follow. Fiduciary liability insurance covers administrative errors and breaches, but insurers expect robust oversight of AI tools and documented review processes.
Crime and Cyber Policies
Crime and Cyber policies are being tested by AI-driven fraud. Phishing success rates have surged by more than 300% with AI-crafted messages. Deepfakes and phishing scams are driving Social Engineering Fraud losses, which typically have specific sublimits within Crime and Cyber policies. A multinational company lost $25 million after a deepfake video call tricked staff into wiring funds, and a third-party administrator lost $20 million after fraudsters used AI voice cloning to bypass authentication protocols.
Some policies require verification with documented authorization via handwritten signature for coverage to apply. Coordinating the stacking of Crime and Cyber limits while proactively addressing coverage stipulations is critical to every company’s risk transfer strategy.
Cyber Insurance
Cyber insurance faces its own AI challenges. In addition to Social Engineering Fraud and Cyber Crime losses, Cyber policies cover data breaches, unauthorized access, ransomware, and business interruption losses. One global manufacturer lost $150 million after an AI-assisted breach evaded detection for 10 days.
Threat actors increasingly use AI to identify vulnerabilities and launch attacks. While AI has benefited cybersecurity posture and resilience, it has also rapidly improved the sophistication levels of threat actors and the techniques used in various stages of a cyberattack.
Cautious Insurance Carriers
As businesses continue to embed and rely on AI, insurers are signaling caution. Some carriers are contemplating exclusions for generative AI, fearing liability from chatbots, faulty pricing, or inaccurate outputs that result in adverse decisions and unfavorable business outcomes. Beyond business-specific exposures, carriers are concerned with the systemic risk posed by the failure of any widely used AI model.
Why Expert Brokers Matter
AI risk isn’t specific to a single line of coverage. It touches D&O, E&O, EPL, Fiduciary, Crime, and Cyber—and that’s just in the Executive Risk space. A single failure can trigger multiple claims. That’s why working with a broker who understands these intersections and how insurers are addressing emerging risks is essential.
Experienced brokers can help identify exposures, negotiate policy terms, and build a coordinated insurance strategy that keeps pace with AI innovation. At Holmes Murphy, our Executive Risk experts understand the unique needs of your business and design tailored and comprehensive coverage that protects what matters most: your people. Reach out today to connect with our team.
