Definition
AI Insurance is an umbrella term for all insurance policies that provide coverage for perils due to AI such as model under-performance, model bias and model copyright infringement etcetera that results in damages for the user of AI.
AI Insurance for first party and third party
The insurance policies for both first party AI risks and third party AI risks. The policies that cover first party risks cover losses that an organization incurs directly from the development and operation of AI systems. An example of first party loss is when an organization using its in-house AI system to dynamically price their products sets the price of the product too low as compared to its market price resulting in direct financial loss to the organization.
On the other hand, the policies that provide liability coverage to an organization from claims arising from its customers, partners and others due to an AI peril caused by the organization’s AI system. An example of third party loss is when an organization that develops an AI system for payment fraud detection fails to detect frauds, hence causing financial loss to their customers.
List of existing AI Insurance policies
- AI Model performance guarantee - This is one of the most popular AI insurance policies. The biggest motivation for AI companies to buy this financial guarantee is that it instills unwavering confidence in their clientele, making the decision to purchase their AI product a straightforward and secure choice. This coverage is available as both first party and third party.
- AI Model fairness guarantee
- Generative AI copyright coverage
Overlap of AI Insurance coverage with other insurance policies
An AI system failure can lead to business interruption, hence, it might be covered under Business Interruption policies. Similarly, an AI system may result in an unfair employment practice that can be covered under Employment Practices Liability Insurance. An AI system might fail due to negligence of employees of an organization and might be covered under Technology Errors & Omissions. A policyholder must reach out to their insurance/brokerage company and get confirmation whether the losses due to AI are already covered or excluded in their existing policies.
How to buy an AI Insurance policy?
The process of getting an AI Insurance is tedious because the insurance companies need a comprehensive evaluation of the AI system during underwriting. The AI system is evaluated in five major areas - data metrics, annotation metrics, training metrics, production setup and the process. It is better to work with an insurance broker that has expertise in evaluating AI systems and who can suggest readiness steps that can lead to lower premium and better coverage.
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