Lockton Re warns that AI is reshaping insured risks
Lockton Re, in collaboration with Lockton International and Armilla AI, which deals in insurance solutions for artificial intelligence, has released a new report, ‘Ready or Not: The Impact of Artificial Intelligence on Insurance Risks’, examining how the rapid adoption of artificial intelligence is reshaping insured risk across commercial lines.
Oliver Brew, Co-Author and Head of Cyber Centre of Excellence, Lockton Re, said “The benefits of AI are clear. It’s also important to recognise that AI is fundamentally different to traditional software. The probabilistic nature of AI and its ability to synthesise massive amounts of data mean it is prone to errors, which will have huge implications wherever implemented. There are no sectors of the economy that are insulated from the potential impact of AI. As an industry we need to prepare for how these rapidly evolving risks are underwritten across commercial insurance and what emerging claims patterns will look like. The current lexicon and frameworks for insurance products and risk categories were not designed with these systems in mind and are increasingly misaligned with how AI-related losses occur.”
The report maps AI-related exposures across key commercial classes, highlighting areas where coverage may be silent, fragmented, or misaligned with how AI failures manifest in practice. It also explores systemic risk considerations arising from shared AI infrastructure, common foundation models, and correlated model behaviour across portfolios.
Baiju Devani, co-author, CTO & cofounder, Armilla AI, said, “The underwriting of AI risk needs to consider the novel perils created. Even if we recognise the peril, there is a growing gap between what insurers intend to cover and what they actually cover. The underwriting toolkit needs to develop at pace to model and price AI risks. Additionally, the challenge for the insurance industry is not whether AI will create systemic risk events, but when, and if underwriting practices can keep pace. AI risk concentration operates through different mechanisms than traditional commercial insurance.”
The report includes a detailed claim scenario involving an AI-powered customer service chatbot that generates incorrect warranty commitments without any system breach or malicious activity illustrating how AI-driven losses can fall outside traditional cyber and liability triggers while still creating material financial and regulatory exposure.
Karthik Ramakrishnan, chief executive & cofounder of Armilla AI, explained: “The report highlights how ambiguity in insurance contracts reduces the perceived value of coverage as AI systems move into core business decision-making. The silence in policy language creates uncertainty when claims arise. Both insurers and policyholders benefit from greater clarity in how AI-related risks are addressed to support responsible adoption of the technology.”
The report emphasises now is the time to consider AI as its own category of risk classification, developing policy solutions that address exposures directly while also future proofing coverage in a manageable way.
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