Kirsten Kirkwood | Senior Professional Indemnity and Clinical Trial Underwriter | SHA Risk Specialists | mail me |
Artificial Intelligence (AI) is arguably one of the most prolific buzzwords of the past decade. Since the advent of ChatGPT in late 2022, AI has become a hotly debated topic beyond the boardroom, reaching casual dinners and braai’s. True, AI presents potentially both humanity’s greatest achievement and unknowable prodigious risk.
A little-known fact is that the original “AI boom” occurred as far back as the 1980s, so the concept is not new. The rapid adoption of AI currently being experienced is largely due to the proliferation of data. Advanced innovations in cloud computing are also critical for effective applications of AI.
What is AI? AI is not just one thing – it is an amalgamation of various technologies, including machine learning, deep learning, and natural language processing. These technologies are combined with data, analytics, and automation. It is used to help businesses drive innovation and achieve their goals, faster and hopefully more accurately.
The two faces of AI
As beneficial as AI is to many businesses, it presents somewhat of a dichotomy, a double-edged sword if you will, to liability insurers providing professional indemnity (PI) cover. On the one hand, it poses new risks and creates uncertainty around the risk exposures for various professions, driving insurers to reevaluate and update their insurance policies to reflect the new perils.
On the other hand, it streamlines the underwriting process for insurers. Similarly, harnessing the capabilities of AI responsibly can be highly advantageous for professionals, however, recklessly applying AI can open the door to liability claims and litigation.
The benefits of AI for many professionals include increased accuracy and efficiency. AI tools can assist professionals with tasks such as legal research or financial analysis, potentially reducing human error and leading to a lower frequency or severity of claims. Due to the perceived capabilities of AI, professionals using AI tools face a potential risk. This risk leads to higher client expectations for work quality, performance, and accountability, whether contractual or not.
While AI can mitigate certain risks, its implementation introduces new risks. The main concerns currently relate to data privacy, security breaches, copyright infringement, accuracy and liability for errors, algorithmic bias, and system failures.
AI risks
There is currently no legal framework to govern AI usage in South Africa, outside of Section 71 of the Protection of Personal Information Act (POPIA), which focuses on automated decision-making. This act outlines limitations on how businesses can use personal information to make automated decisions that affect individuals.
Insurers face the challenge of a future rapidly evolving legal and regulatory framework around AI. This could increase their risk exposure during the time it takes to understand and adapt to the regulatory changes. It is fair to say that currently most PI policies do not explicitly address AI-related risks.
Determining liability in cases involving AI will be complex. In particular where multiple parties are involved in the development, deployment and use of AI tools and systems. This complexity could lead to disputes over coverage and claims, as well as disputes over where the liability lies.
For instance, assuming the AI’s advice or design proved to be defective, questions would arise as to what was the proximate cause of the claim? AI’s negligence or the insured client? Did the insured client act negligently by making use of an AI tool (which held itself out as an expert) or was the Insured client negligent for failing to verify the information/advice. There is an added complexity where AI, at least on current iterations, blatantly lies and fabricates information.
More recently, a popular AI bot advised in response to ‘how many rocks should a child eat’, it said ‘UC Berkeley geologists recommend eating at least one small rock per day’. This is obviously false. The point being, whilst AI advancement to date is groundbreaking, evidently it is still tremendously unreliable, and insured parties must take care.
AI as a tool for insurers
Although AI is creating a heightened and more complex risk landscape, it also offers insurers many benefits from a risk management perspective.
AI algorithms can predict potential risks and suggest mitigation strategies based on historical data and real-time information being fed into the tool. It can also detect suspicious patterns or anomalies in insurance claims data, assisting insurers to identify potential fraudulent cases more effectively. Eventually, AI tools will enable insurers to revolutionize risk assessment and analysis for professional indemnity cover through advanced data analytics and automation in assessing and managing risks.
Ultimately, AI is an emerging risk that presents both challenges and opportunities for PI insurers. It is a continuously evolving risk and our focus now as insurers must be on developing adaptable coverage solutions that can evolve alongside AI as we learn more about this technology and its capabilities.
The future is here, and AI will become more advanced each year and it is up to Insurers (and insureds) to adapt their risk management strategies, risk assessment criteria and tools and ensure that this risk is properly considered.
Related FAQs: AI professional indemnity insurance
Q: What is AI professional indemnity insurance?
A: AI professional indemnity insurance is a type of liability insurance designed to protect professionals and firms using AI technology from claims made by clients for financial losses due to errors, omissions or negligence related to the use of AI systems in the provision of their services.
Q: How does artificial intelligence impact professional indemnity insurance?
A: The use of artificial intelligence in professional services introduces new risks that may affect liability and insurance. Professional indemnity insurers must consider these risks when underwriting policies, as errors made by AI models could lead to significant financial loss for clients.
Q: Why do law firms need professional indemnity insurance when using AI?
A: Law firms using AI must ensure they have professional indemnity insurance because the integration of AI technology can lead to complex legal challenges and potential financial losses. Insurance coverage can protect firms from claims arising from mistakes made by AI systems during legal advice or document preparation.
Q: What are the insurance considerations for firms adopting AI technology?
A: Firms adopting AI technology should consider the potential risks of AI, including data breaches and errors in AI outputs. They should work with insurance brokers to understand the specific insurance products that cover these risks, such as cyber insurance and professional indemnity insurance.
Q: How can AI risk management be integrated into a law firm’s operations?
A: AI risk management can be integrated by establishing protocols for the use of AI in legal practices, conducting regular assessments of AI systems and ensuring compliance with AI regulations. This approach helps mitigate the risks of AI while maintaining adequate professional indemnity insurance.
Q: What role do insurance brokers play in navigating AI risks?
A: Insurance brokers play a crucial role in navigating AI risks by providing expert advice on the right insurance arrangements for firms using AI. They can help identify specific coverage needs related to AI technology and connect firms with professional indemnity insurers that understand the unique challenges posed by AI.
Q: Are there specific AI regulations that affect professional indemnity insurance?
A: Yes, there are emerging AI regulations that impact professional indemnity insurance. These regulations may dictate how AI is used in professional services and outline the responsibilities of AI providers, which can influence the terms and conditions of liability insurance policies.
Q: What types of claims might be covered under AI professional indemnity insurance?
A: Claims covered under AI professional indemnity insurance may include those related to financial loss caused by incorrect legal advice generated by AI systems, data breaches involving client information and negligence in the deployment of AI models that lead to adverse outcomes.
Q: How does cyber insurance relate to AI professional indemnity insurance?
A: Cyber insurance is closely related to AI professional indemnity insurance as both cover risks associated with technology use. Firms using AI may face cyber threats, and having both types of insurance ensures comprehensive protection against various liability scenarios that could arise from AI integration.
