AI Insurance Coverage for BI/PD Risk: Closing the Gap

As artificial intelligence (AI) becomes integrated into standard business operations, the insurance landscape is shifting. Insurers are offering AI-specific coverage to address the unique risks introduced from machine learning platforms and other AI-powered tools.   

While general liability and cyber insurance policies have traditionally served as two critical pillars of protection for businesses, these policies may not be sufficient to fully address the unique, evolving risks associated with the use of AI.

In this article, we’ll discuss how coverage tailored to AI risks can strengthen existing risk management programs and address the gaps in general liability and cyber policies.

How AI is Creating BI/PD Coverage Gaps

Most businesses rely on two critical insurance coverages to protect against a wide range of exposures: general liability and cyber.  However, as AI introduces new risks that threaten organizations’ reputation and bottom line, these policies may not be sufficient to address bodily injury (BI) and property damage (PD) claims:

• General Liability: General liability traditionally covers BI and PD); however, new Insurance Services Office (ISO) endorsements are being introduced to specifically exclude BI/PD claims that arise from "AI activities."
• Cyber Insurance: These policies are primarily designed to cover "pure financial loss" like data breaches or system hacks. Critically, cyber policies generally do not cover BI/PD, regardless of whether AI is involved.

As a result, businesses relying on these coverages alone, without AI-specific provisions, could face significant consequences in the event of an AI-related incident.

Industry-Specific BI/PD Risks from AI

Across industries, from public entities to financial institutions, AI is changing how businesses should approach their risk management plans, especially as it gets embedded deeper into physical operations, decision-making processes and day-to-day workflows. For example:

• Healthcare: A health misdiagnosis powered by AI could lead to bodily injury.
• Construction: Autonomous equipment can result in property damage to a client.
• Manufacturing: AI system failures can result in asset losses.

These novel BI/PD risks create complex exposures that are not always fully addressed by traditional insurance policies. Without the right coverage solutions in place, businesses could experience large losses and disruptions to their operations.   

AI Insurance Coverage Solutions for BI/PD

As AI exclusions are still developing, new monoline solutions for generative AI (GAI) third-party liability are being introduced by insurers. Liability exposure and litigation costs arising out of the use of AI in day-to-day operations are largely unknown. As such, ISO issued new exclusions (CG 4047 / 4048) as of 1/1/26, applicable to commercial general liability policies.

The primary purpose of this new coverage is to act as a bridge for businesses. When a general liability policy excludes AI-related physical accidents and a cyber policy refuses to cover physical damage, the business is left exposed. However, new AI-specific coverage is designed to fill the BI/PD gap created by those general liability endorsements. While it may also offer some protection for pure financial loss—acting as a safety net for those without robust cyber policies—its core value lies in restoring the physical damage protection that standard forms are now removing.

The Value of AI-Specific Coverage in Your Risk Management Program

The relevance of the new AI-specific product to close BI/PD coverage gaps depends heavily on the market's adoption of AI exclusions. If general liability underwriters do not broadly adopt these exclusions, the gap remains closed by standard policies. However, as AI risk grows, these exclusions are becoming more common, making this new coverage a critical component of a modern risk management strategy.

At Alliant, our specialists bring decades of experience developing strategic risk management programs that align with your unique operations, including use of AI in your daily workflows. By leveraging our industry knowledge and relationships with A-rated insurers, we can help close critical coverage gaps introduced by AI. 

Contact your Alliant broker to learn more.