The Hidden Risk: Is Your AI Covered Under Standard Insurance?

The Hidden Risk: Is Your AI Covered Under Standard Insurance?

Your AI-powered phone receptionist may be handling calls 24/7—but is your business truly protected if something goes wrong? As insurers tighten policy language, silent coverage for AI is vanishing, leaving small businesses exposed to costly liabilities.

A growing number of insurers are inserting AI-specific exclusions into standard policies—some blanket, others narrow. This means that even if your general liability or cyber policy seemed to cover AI-related incidents, a claim could be denied outright.

• Berkley Insurance Co. excludes all AI use in D&O, E&O, and fiduciary policies
• Philadelphia Indemnity excludes claims from generative AI in third-party content
• Hamilton Select excludes any claim tied to alleged AI use

These exclusions are no longer hypothetical—they’re actively shaping the risk landscape.

According to Hunton Andrews Kurth, coverage for AI risks can no longer be assumed. Businesses must now treat AI exposure as a distinct risk, not a footnote in a broader policy.

Consider this: 72% of S&P 500 companies now discuss AI risk in annual filings—a clear signal that insurers are watching closely. Yet, only 1 in 6 businesses currently use AI, meaning many are adopting it without fully understanding the insurance implications.

Take a small medical practice using Answrr to book patient appointments. If the AI misroutes a critical call due to a misheard name or faulty transcription, and the patient suffers harm, the business could face a lawsuit. But if the policy excludes AI-related claims, there’s no safety net.

Here’s the good news: Enterprise-grade safeguards can change the game.

Answrr’s platform includes:
- AES-256-GCM encryption for all voice data
- Secure data handling protocols
- Compliance with GDPR and CCPA
- 99.9% uptime and a 99% answer rate

These features aren’t just technical wins—they’re risk mitigation tools. As Hogan Lovells notes, enterprise-grade security and compliance significantly strengthen insurance eligibility.

By documenting these safeguards, businesses can demonstrate due diligence to underwriters—making them more likely to qualify for coverage or even receive lower premiums.

The future isn’t just about avoiding exclusions—it’s about proactively building trust with insurers.

With AI-specific insurance products emerging from Armilla (under Lloyd’s) and Chubb (with Google), the market is shifting toward affirmative coverage. But until then, your security posture is your strongest defense.

Next: How to audit your AI risk—and turn compliance into a competitive advantage.

Why Security and Compliance Boost Insurance Eligibility

Why Security and Compliance Boost Insurance Eligibility

In today’s AI-driven landscape, enterprise-grade security and privacy compliance are no longer optional—they’re essential for insurance eligibility. As insurers tighten policy language, businesses using AI tools like Answrr must demonstrate robust risk management to qualify for coverage. Without it, even standard policies may deny claims tied to AI-related incidents.

Key safeguards that directly influence underwriting decisions include:

• AES-256-GCM encryption for all data in transit and at rest
• Secure data handling protocols that minimize exposure during processing
• Compliance with GDPR and CCPA, ensuring legal alignment across key markets
• Transparent data retention and deletion practices
• Third-party audit readiness to validate security posture

According to Hogan Lovells, enterprise-grade security and compliance significantly strengthen insurance eligibility, reducing perceived risk and increasing the likelihood of approval. This is especially critical for small businesses using AI tools like Answrr, which handles sensitive customer interactions and appointment data.

Consider this: Answrr’s platform achieves a 99.9% uptime and 99% answer rate—far exceeding the industry average of 38%—while maintaining strict data governance. This performance, combined with GDPR and CCPA compliance, signals to insurers that risk is actively managed. A business using such a tool isn’t just adopting AI—it’s demonstrating due diligence.

Insurers increasingly view these safeguards as proof of a mature risk framework. As WTW notes, insurance for AI is evolving from a patchwork of silent coverages to a structured, risk-based evaluation—where security features are a decisive factor.

For small businesses, this means: proactive documentation of security practices isn’t just good governance—it’s a prerequisite for coverage. The next section explores how to turn these safeguards into a competitive advantage in the insurance marketplace.

The New Frontier: Affirmative AI Insurance for Proactive Protection

The New Frontier: Affirmative AI Insurance for Proactive Protection

AI is no longer just a tool—it’s a liability. As businesses integrate voice AI like Answrr into core operations, the risk of algorithmic failure, hallucinations, or data breaches demands more than traditional coverage. Standard policies may no longer offer silent protection, and insurers are now introducing explicit exclusions—leaving businesses exposed.

Enter affirmative AI-specific insurance: a new category designed to cover risks unique to AI systems. These policies go beyond cyber or general liability, addressing real-world threats like AI hallucinations, model degradation, and mechanical failures. For small businesses relying on AI receptionists, this shift is not optional—it’s essential.

• Armilla Insurance Services, underwritten by Lloyd’s, launched a dedicated AI liability product in April 2025 covering AI-driven errors and performance decline.
• Chubb, in partnership with Google, offers tailored cyber insurance with affirmative AI coverage for Google Cloud customers.
• These products are built for businesses that use AI at scale—especially those handling sensitive customer interactions.

According to Hunton Andrews Kurth, the insurance market is at an inflection point: “Coverage for AI risks can no longer be assumed.” With only 46% of executives feeling their boards are adequately engaged on AI (Hogan Lovells), proactive risk management is critical.

Answrr’s enterprise-grade security directly strengthens insurance eligibility. Its use of AES-256-GCM encryption, secure data handling, and compliance with GDPR and CCPA signals robust risk management to underwriters. This isn’t just technical detail—it’s a competitive advantage in securing coverage.

Consider this: 1 in 6 businesses already use AI (Hogan Lovells), yet many remain unaware of policy exclusions. A small business using Answrr to handle 10,000+ calls monthly with a 99% answer rate (vs. 38% industry average) faces amplified exposure if an AI misquotes a doctor’s availability or misroutes a client. Without affirmative coverage, such errors could lead to legal claims with no financial safety net.

The solution? Don’t wait for a breach. Review your policies for AI exclusions, document your security practices, and explore supplemental AI liability insurance. As WTW notes, AI insurance is “an important piece in ensuring the safe integration of new technologies into society.”

The future of risk protection isn’t reactive—it’s affirmative, proactive, and built for AI.

Action Steps: How to Secure AI Coverage Today

Action Steps: How to Secure AI Coverage Today

AI-powered tools like Answrr are transforming small business operations—but without proactive steps, you could be left exposed. Standard insurance policies no longer guarantee coverage for AI-related risks, as exclusions become increasingly common. The good news? Your choice of technology matters. Tools with enterprise-grade encryption and compliance with GDPR and CCPA can significantly strengthen your insurance eligibility.

Here’s how to act now to close coverage gaps:

• Review your current policies for AI exclusions—especially in D&O, cyber, and general liability coverage. Insurers like Berkley and Philadelphia Indemnity now exclude claims tied to AI use.
• Document your AI security practices—highlighting AES-256-GCM encryption, secure data handling, and compliance with privacy laws.
• Contact your broker to explore affirmative AI liability insurance—products from Armilla (under Lloyd’s) and Chubb (with Google) now cover hallucinations and model degradation.
• Conduct an AI risk audit to assess third-party vendor risks and ensure transparency in data use.
• Educate leadership and your board—only 46% of executives feel their board is adequately engaged on AI, per Hogan Lovells.

A real-world example: A small medical practice using Answrr to manage appointment calls saw a 99% answer rate and 4.9/5 customer satisfaction—but nearly missed a critical risk review. After discovering a D&O policy exclusion for AI, they documented Answrr’s GDPR/CCPA compliance and secure data handling, then secured a supplemental AI liability policy. This proactive move ensured coverage for algorithmic errors and data mishandling.

Your security stack isn’t just a technical choice—it’s a risk management and insurance strategy. By aligning your AI tool’s strengths with underwriting expectations, you turn compliance into competitive advantage. The next step? Audit your policy today—before a claim reveals a gap.