The Big Question: Is AI creating a new legal risk landscape for insurers?

Artificial intelligence is transforming the way businesses work. From the aim of simply undertaking repetitive tasks which would free humans to focus on tasks that will create and deliver growth, AI has rapidly become far more.

It has the ability to deliver content and media in hours when in the past it would take days. There are warnings in the ability of business to adapt to the speed of change. One commentator recently said that businesses had four years to navigate the move from typewriter to desktop. The move to AI is being undertaken in weeks.

It has seen cautions from CEOs. EY recently revealed that its research found that CEOs were now becoming far more aware of the need to ensure that any AI systems they were looking to implement came with a full understanding of the impact and the risks they would create.

Insurers are increasingly being asked to assume greater levels of cyber risk and while AI has created the ability to enhance security it also creates new threats for clients as bad actors look to harness AI capabilities to increase the sophistication of their attacks.

However, AI is creating new legal risks both in terms of emerging liabilities and how AI may impact the legal process and potentially leave it open to questioning.

Lee Williams, Head of AdvantageGo

Bridget Tatham, Partner at Browne Jacobson, has recently been elected President of the Forum of Insurance Lawyers (FOIL) for 2026 and says the current risk environment is creating new legal threats for insurers and clients with technology at the heart of many.

As an organisation, FOIL brings together 8000 lawyers and paralegals that work with its 61 corporate members to guide its thinking and create legal proposals which will help support the insurance industry.

“New technology is creating emerging risks for insurers and business,” she explains. “We are seeing significant advances in autonomous transport and e-mobility. Generative AI, IP ownership; deepfakes and fraud, will create novel liability questions and gaps in coverage as lines blur between product liability and user responsibility. Deepfakes enable sophisticated fraud/identity theft increasing claims complexity.

“The rapid rise of Artificial Intelligence (AI) and evolving technology regulation are transforming the sector, bringing data security, cyber risk and AI governance to the forefront for insurers and their clients.

Tatham adds: “Adoption of technology-driven solutions has been patchy, and legal service and insurance providers have yet to fully optimise their businesses to take advantage of the full capabilities of the diverse types of AI.

“It is unsurprising that there is a lot of discussion in the market about AI and ethics. Organisations need to ensure their AI solutions comply with relevant laws and ethical standards, environmental considerations, bias concerns, and transparency expectations.”

In terms of the risks she explains: We see a threat of digital and technological exclusion as not all have equal access to or comfort with digital technologies leading to challenges based on procedural fairness.

“There are concerns over the limitations of probabilistic models in legal reasoning and over-dependence by legal practitioners. AI systems provide probability-based predictions rather than definitive legal analysis.

“Over-reliance on these tools may lead to missed nuances, incorrect legal strategies, and professional negligence claims.”

Tatham added there is a need to address the black box issue and building trust for consumers.

“This lack of transparency can make it difficult to challenge AI-assisted decisions and may breach professional duties to be able to explain advice,” she cautioned. “AI integration in dispute resolution and adjudication has to be considered.

“AI-assisted decision-making in courts and tribunals may lead to more consistent but potentially less nuanced outcomes. There are concerns about algorithmic bias, transparency, and the potential for challenges to AI-assisted decisions, creating new grounds for appeals.”

There is also a need to understand the balance will be struck between augmentation and replacement, which will be necessary for skills and experience retention.

“Over-automation may erode essential legal skills and institutional knowledge, with next generation professionals not developing critical analytical abilities as AI increasingly manages routine tasks,” Tatham says. “This may become an unfillable skills gap.

“Synthetic learning is also an issue. AI systems trained on AI-generated content may perpetuate errors, biases, and produce increasingly unreliable outputs leading to flawed legal advice and incorrect case assessments.

“Also we have already seen hallucinated content leading to incorrect submissions, wasted costs and professional sanctions. This erodes trust in AI tools and creates significant reputational and financial risks for legal professionals and insurers.

Tatham says this is where the legal service and FOIL can and will play an increasing part in navigating the threats the industry and clients now face.

“The legal profession can help insurers better understand the changing risk environment and insurance needs of consumers through active dialogue and collaboration where appropriate,” she continues. In terms of what we as FOIL can do.

“We will focus on the benefits that stakeholder collaboration brings, using the combined resources and experiences of members and partner organisations to help shape the future legal and insurance landscape.

“We are keen to support members and insurers through change, whether technological, regulatory, or cultural, learning from each other where appropriate FOIL can offer a trusted conduit for responding to regulatory, legal and insurance reforms.”

Tatham concluded: “My message to the industry is that FOIL aims to continue as a trusted partner for insurers and self-insured corporations and welcomes the opportunity to collaborate with the insurance industry on their strategic imperatives and projects.

“FOIL provides a platform to firstly harness stakeholder collaboration and building consensus where appropriate; secondly offering an independent and thought-provoking voice in the legal and insurance market; and thirdly supporting members and insurers through technological, regulatory, and cultural disruption.”