The costs and types of AI-specific insurance are shaped by the coverage scope, industry dynamics, and the unique exposures of each company. Here’s a breakdown of the primary coverages available to AI companies, their focus areas, and their costs.

This post will look at the following types of coverage:

• Errors & Omissions insurance
• Bias and Discrimination coverage
• Intellectual Property (IP) claims coverage
• Regulatory Investigation coverage
• Cyber Insurance coverage

Errors and Omissions (E&O) Insurance

Errors and Omissions (E&O) Insurance protects against financial losses caused by errors, omissions, or negligence in delivering AI-based services or products. 

In short, it covers a company from financial loss caused to its customer due to its service or product not performing that way it should have. 

• Why it’s important: failure to meet contractual obligations or performance standards could result in lawsuits for breach of contract or negligence.
• Cost: premiums vary annually for companies depending on factors like annual revenue, the criticality of the AI service, and prior claims history. Industries like healthcare and fintech, where operational risks are higher, often see increased premiums.

How E&O insurance protects AI companies

Often the damage that a company can cause to a customer far exceeds the value of the contract. This coverage is crucial for businesses whose AI solutions are integrated into critical business operations or are operating in highly regulated industries, as even minor failures can lead to significant client losses and legal disputes. 

• Example: An AI-powered logistics platform provides inaccurate delivery schedules, leading to missed deadlines and financial losses for a retail client.

By covering legal fees, settlements, and judgments, E&O insurance enables companies to focus on innovation and growth without being derailed by costly claims.

Lawyers will of course carefully draft indemnity language and place liability caps in the contract but those caps do not apply to acts of negligence (one cannot contract out of negligence), which is one of the most shocking realities for non-lawyers to discover.

Bias and Discrimination coverage

Bias and Discrimination coverage protects against claims that stem from biased AI decisions that result in discriminatory outcomes, whether intentional or not. 

Companies often face challenges in auditing and mitigating bias within AI systems, particularly when algorithms are trained on incomplete or unrepresentative datasets. 

• Why it’s important: violations of anti-discrimination laws may lead to costly legal actions, including class-action lawsuits and penalties.

• Cost: costs vary annually and are influenced by the complexity of the AI model, regulatory environment, and historical complaints. Companies deploying AI in sensitive areas like hiring or credit assessments may face higher premiums.

Companies should consider bias and discrimination if their AI solution is used for identification or decision-making in some way. For example: 

• Lending decisions (e.g. credit cards, mortgages)
• Healthcare decisions (e.g. recommended treatment plans)
• Public safety (e.g. analysis of footage) 
• Recruitment decisions (e.g. analyzing job applications and making recommendations) 

How Bias and Discrimination coverage protects AI companies

AI models are probabilistic, meaning that outputs will not be the same every time and accuracy is assessed in terms of likelihood, so it’s very hard for companies to get comfortable that their models will not be biased and discriminatory outputs.

• Example: A mortgage company’s AI model is accused of systematically offering higher interest rates to minority applicants, triggering regulatory scrutiny and legal action.

This coverage protects against financial losses and reputational damage arising from lawsuits, ensuring companies can address these risks while maintaining client and stakeholder trust.

Intellectual Property (IP) claims coverage 

Intellectual Property (IP) Claims Coverage safeguards against claims of copyright, trademark, or patent infringement related to AI technologies. 

• Why it’s important: accusations of IP theft can lead to injunctions halting product distribution or monetary damages that exceed initial investment costs.
• Cost: premiums vary annually depending on the technology’s proprietary nature, the industry, and the likelihood of infringement claims. AI companies working in competitive sectors, like entertainment or software development, often pay more.

IP disputes are particularly prevalent in industries like healthcare, fintech, and autonomous vehicles, where cutting-edge technology and high stakes drive intense competition.

How IP claims coverage protects AI companies

Companies often face heightened exposure to IP disputes due to the competitive nature of AI development and the reliance on proprietary datasets and algorithms. 

• Example: An ed-tech company faces a lawsuit after its AI-powered learning tool is alleged to have used copyrighted training datasets without authorization.

This coverage helps mitigate the financial and operational risks of lawsuits, enabling companies to defend their innovations while continuing to scale. 

Regulatory Investigation coverage

Regulatory Investigation Coverage provides financial and legal support during investigations by regulatory bodies over non-compliance with data protection or AI transparency laws. It also covers costs like legal counsel and audit readiness.

• Why it’s important: penalties for violations, such as under GDPR or CCPA, can include substantial fines and damage to brand reputation.
• Cost: coverage costs vary annually depending on factors like the volume of data processed, geographical regions of operation, and regulatory environment. Industries dealing with high volumes of consumer data, such as e-commerce and advertising, often pay more.

How regulatory coverage protects AI companies

Regulatory Investigation coverage enables companies to address inquiries under frameworks such as GDPR, CCPA, or AI-focused legislation without disrupting growth efforts.

• Example: A marketing firm using AI for personalized campaigns is investigated for non-compliance with GDPR’s data privacy requirements.

Companies often face unique challenges in keeping pace with evolving regulations while scaling their operations, making this coverage critical.

Cyber Insurance coverage

Cyber Insurance Coverage covers financial losses from cyberattacks, data breaches, or fraud enabled through AI technology. These policies complement each other, addressing both traditional cyber risks and emerging vulnerabilities tied to AI technologies.

• Why it’s important: liability for AI-related breaches and fraud can result in lawsuits from clients, as well as costs for system recovery and customer notifications.
• Cost: premiums vary annually depending on company size, data sensitivity, and cybersecurity measures. Companies in industries like finance or healthcare, which handle sensitive data, face higher premiums.

How Cyber Insurance coverage coverage protects AI companies

While cyber insurance covers risks like data breaches, ransomware, and social engineering attacks, AI companies have unique liabilities. 

• Example: A smart manufacturing system is hacked, causing production delays and exposing sensitive supplier contracts, leading to legal disputes.

AI-specific coverage focuses on liabilities such as algorithmic errors, AI-enabled fraud (e.g., invoice manipulation), and compliance issues related to AI decision-making.

Start evaluating your AI insurance options

Securing the right AI insurance is critical to protecting your company from unforeseen risks while enabling sustainable growth. The process of procurement, claims, and underwriting may seem complex, but with the right approach and questions, it can be streamlined and effective. Navigating these processes requires thoughtful planning and the right partnerships. 

By proactively engaging with insurers and brokers experienced in your specific technology and business needs, companies can secure tailored coverage, streamline claims, and mitigate risks effectively.

The Vouch Approach to AI insurance

Understanding insurance can be daunting but Vouch is ready to streamline the process for you. They are experts in identifying your specific needs and guiding you through the process quickly, ensuring you understand all aspects of your insurance costs. 

Vouch is the leading insurance broker for high-growth companies, and we can help you identify the must-have coverages and find tailored solutions that fit your unique needs. Get a coverage recommendation based on your business stage and unique needs.