Artificial Intelligence is actively reshaping how insurance agencies operate. From reducing repetitive tasks to improving turnaround times, AI offers real benefits. But alongside the efficiency and automation comes a new set of challenges: legal liability, data protection, and professional exposure.
So how do you balance the rewards of AI with the risks to your agency’s E&O coverage?
Common Benefits of AI
Many agencies are already experimenting with AI—and for good reason. The benefits are hard to ignore:
- Speed: Faster task completion, especially for repetitive functions
- Time Savings: Automates routine tasks, freeing up your team
- Accuracy: Helps reduce human error
- Efficiency: Minimizes duplication of effort
Popular tools include content generators, chatbots, underwriting assistants, and email-writing support.
But Here’s the Catch: AI Isn’t Risk-Free
AI tools don’t operate in a vacuum. You are still responsible for the outputs they generate—especially when those outputs impact your clients or appear in official documentation.
Here are some common risks associated with AI in the insurance space:
- Liability for AI Errors: You’re on the hook if AI generates bad information
- Data Security Gaps: Sensitive client data may be exposed or stored improperly
- Compliance Issues: AI outputs may not meet legal or regulatory standards
- Bias or IP Theft: AI can perpetuate discrimination or generate plagiarized content
Key Considerations Before You Hit “Generate”
When exploring or adopting AI tools, your agency should:
- Clearly define your top 5 use cases for AI
- Carefully vet vendors, reviewing contracts, privacy policies, and data handling practices
- Understand what your insurance does and does not cover when it comes to AI-related issues
Questions to Ask Your Vendor
- Who owns the data and the output?
- What liability limits are in place?
- What warranties and disclaimers are provided?
- Are indemnification clauses clearly defined?
How AI Can Impact Your E&O Coverage
Your errors & omissions (E&O) policy might not fully cover risks associated with AI. Here’s what to review:
Top 5 Things to Check in Your E&O Policy
- Limits of Liability – Are they sufficient in the AI context?
- Sub-Limits – Are there carve-outs that restrict AI-related issues?
- Deductible vs Retention – Know how much risk you’re assuming
- “Pay on Behalf” Language – Who controls the defense?
- Definitions & Exclusions – AI-related issues may fall into gray areas
If in doubt, reach out to your carrier or broker for clarification.
Agency Action Plan: Mitigate the Risk
Want to use AI responsibly? Follow this checklist:
- Protect sensitive client and employee data
- Use generalized prompts (no client-specific info)
- Double-check AI output for accuracy and compliance
- Take the Catalyit Tech Assessment to identify smart, secure tech solutions
- Establish internal policies for AI usage, monitoring, and audits
- Review and update privacy statements
- Use secure tools like email encryption or portals for sensitive data
Final Thought
AI can supercharge your agency—but only if you stay proactive about managing the risks. Adopt smart. Vet vendors. Review your contracts and coverage. And above all, treat AI like any other team member: useful, but not infallible.