Cyber Insurance Market Trends: AI Risks and Coverage Gaps 

Cyber Insurance Market Trends: Emerging AI Risks and Coverage Considerations 

The cyber insurance market is evolving as businesses face increasingly sophisticated cyberattacks, new artificial intelligence (AI) risks, and growing privacy-related litigation. Although insurance capacity remains strong and pricing is generally stable, insurers are becoming more selective about the risks they cover, particularly in industries and accounts with greater exposure. 

For businesses, this means that a competitive premium does not necessarily tell the whole story. Policy limits, exclusions, sublimits, security requirements, and available risk management services deserve just as much attention during a coverage review. 

AI adds another layer of complexity. It can help organizations improve efficiency, but it can also make phishing attacks more convincing, automate fraud attempts, and introduce liability concerns when businesses rely on inaccurate AI-generated information. 

Understanding these developments can help businesses make more informed decisions about their cybersecurity practices and insurance protection. 

1. Cyber Insurance Market Trends: Pricing, Capacity, and Underwriting 

The cyber insurance market remains competitive, with substantial available capacity and generally stable pricing across many segments. However, increasing claims costs may put pressure on insurer profitability, leading to more selective underwriting. 

Rather than broad price increases across the entire market, insurers are increasingly differentiating between individual businesses based on their industry, security controls, claims history, and overall risk profile. 

Businesses that may face greater underwriting scrutiny include: 

• Healthcare organizations 

• Manufacturing companies 

• Technology-focused businesses 

• Larger middle-market accounts 

• Organizations with unfavorable claims histories 

Security practices are also an important consideration. Insurers may evaluate how businesses protect their systems, manage access, respond to incidents, and address vulnerabilities. 

At renewal, the result may not simply be a change in premium. Some businesses may encounter adjustments to deductibles or retentions, coverage limits, sublimits, exclusions, or other policy conditions. 

What businesses should do:  

Look beyond the renewal price. Review the actual coverage being offered, understand any changes to policy wording, and confirm that the proposed terms still address the organization’s current exposures. 

2. How AI Is Changing Cybersecurity Risks 

Artificial intelligence is not necessarily creating entirely new categories of cybercrime. Instead, it is making familiar attacks faster, more convincing, and easier to conduct at scale. 

According to the industry material cited in the source brief, IBM reported that AI-driven attacks increased by 56% in 2026. The brief also reported that deepfake impersonation, AI-enabled malware, and AI-generated phishing campaigns were among the common attack methods. It cited an average data breach cost of $4.99 million and reported that AI-driven attacks added an average of $1 million to breach costs. 

These figures highlight why businesses should pay closer attention to how cybercriminals are using AI. 

Phishing and Social Engineering 

AI can help criminals produce convincing emails, imitate writing styles, and personalize messages using publicly available information. 

An employee might receive what appears to be a legitimate request from an executive, client, or vendor. A message could instruct them to change payment details, share sensitive information, or approve an urgent financial transaction. 

Traditional warning signs, such as poor grammar or unusual wording, may be less obvious when attackers use AI-generated content. 

Deepfake Impersonation and Funds Transfer Fraud 

AI-generated audio and video can make it harder to verify someone’s identity based on appearance or voice alone. 

For example, an employee could receive a voice message that appears to come from a senior executive requesting an urgent wire transfer. If the employee acts without independently verifying the request, the business could suffer a financial loss. 

Cyber insurance may provide protection for certain fraud-related losses, but coverage varies. Social engineering and funds transfer fraud may be subject to specific endorsements, sublimits, conditions, or exclusions. 

What businesses should do:  

Establish independent verification procedures for financial transactions. Callback protocols using known contact information, dual approvals, and separate validation of changes to vendor payment details can help reduce the risk of fraudulent transfers. 

3. AI Can Create Professional and Business Liability 

Cybersecurity is only one part of the AI risk picture. Businesses that use AI in their operations, professional services, marketing, or decision-making may also face allegations of negligence, intellectual property infringement, or regulatory violations. 

Potential scenarios include: 

• Inaccurate AI-generated information: A business relies on fabricated or misleading AI-generated content when advising a client or making an important decision. 

• Intellectual property disputes: AI-generated marketing materials or other content allegedly infringe another party’s protected work. 

• Automated decision-making: An AI-assisted process produces a discriminatory outcome or contributes to a regulatory compliance issue. 

• Uncontrolled access to business systems: An AI-enabled tool is given permissions or authority that exceed what the organization intended. 

These situations may create exposures beyond a traditional cyber incident. Depending on the allegations and circumstances, a claim could involve professional liability, technology errors and omissions (E&O), media liability, intellectual property coverage, crime insurance, general liability, or cyber insurance. 

There is no single insurance policy that automatically covers every AI-related loss. 

Insurer approaches are also evolving. Some policies may provide affirmative AI-related coverage, while others may contain exclusions, endorsements, or sublimits that restrict certain exposures. 

What businesses should do:  

Identify how AI is being used across the organization, establish appropriate oversight, and review relevant policy wording with an experienced insurance advisor. Pay particular attention to AI-related exclusions and limitations across multiple lines of coverage. 

4. Privacy Litigation Is an Increasing Concern 

Businesses do not necessarily need to experience a ransomware attack or data breach to face a privacy-related claim. 

Website tracking technologies, cookies, analytics tools, and marketing platforms can collect information about visitors and their online activity. AI can make it easier to identify potentially actionable data collection practices and pursue allegations of privacy violations. 

The source brief also notes that privacy claims may involve smaller groups of affected individuals than in the past. Allegations involving non-consensual data collection or the use of tracking technologies may create legal defense expenses and potential settlement exposure. 

For businesses, this means that routine digital marketing and website operations deserve attention as part of a broader risk management strategy. 

Practical Steps to Review Privacy Exposure 

Businesses should consider: 

• Reviewing website cookies, tracking pixels, and analytics tools. 

• Confirming that privacy notices and consent mechanisms reflect actual data collection practices. 

• Understanding how third-party platforms collect, process, and share information. 

• Coordinating with legal, compliance, and IT teams when evaluating privacy practices. 

• Reviewing whether cyber insurance addresses relevant privacy claims and associated defense costs. 

Coverage should not be assumed simply because a business has a cyber policy. The policy’s definitions, exclusions, and applicable conditions will determine how a particular claim may be handled. 

5. The Cyber Insurance Coverage Gap Among Small Businesses 

One of the most significant opportunities in the cyber insurance market is the number of small and medium-sized enterprises (SMEs) that remain without standalone cyber coverage. 

The industry brief cites two figures that illustrate the difference in adoption: TransUnion reported that 93% of companies with more than $1 billion in annual revenue carry some form of cyber coverage, while a 2025 GlobalData survey found that only 16.8% of SMEs have a standalone cyber insurance policy. 

These figures refer to different measures of coverage adoption, so they should not be interpreted as a direct like-for-like comparison. However, they highlight a substantial protection gap among smaller businesses. 

Many SMEs assume they are unlikely to be targeted because of their size. Others believe that general liability, property, or professional liability insurance will automatically cover cyber-related losses. 

Neither assumption is safe. 

A smaller organization may still rely on cloud-based software, digital payment systems, online customer portals, and electronic records. A cyber incident can interrupt those operations, expose confidential information, and create expenses that are difficult to absorb without appropriate protection. 

What Cyber Insurance May Offer Smaller Businesses 

Depending on the policy, coverage may include certain expenses associated with: 

• Digital forensic investigations 

• Breach response and notification 

• Incident response services 

• Data restoration and recovery 

• Covered business interruption losses 

• Certain cyber-related liability claims 

Availability, limits, waiting periods, and exclusions vary by policy. 

Some insurers also provide access to risk management services that can be especially useful for businesses without dedicated cybersecurity teams. Depending on the carrier, these resources may include threat monitoring, vulnerability notifications, endpoint detection and response tools, employee phishing training, and access to incident response specialists. 

What businesses should do:  

Evaluate both the financial protection and the risk management resources available through a cyber policy. A policy can offer value before an incident occurs when the business actively uses the services provided. 

6. What Businesses Should Review Before Renewing Cyber Insurance 

As underwriting becomes more selective and AI-related exposures evolve, businesses should approach renewal as an opportunity to reassess their overall risk profile. 

A useful review should address five areas. 

1. Changes in Operations and AI Use 

Identify new software, AI tools, digital services, and automated processes introduced since the last renewal. Consider whether these changes affect confidential information, client services, financial transactions, or regulatory responsibilities. 

2. Security Controls 

Review multifactor authentication, employee access permissions, system updates, backups, incident response procedures, and employee awareness training. 

Security requirements may also affect underwriting decisions and eligibility for particular coverage options. 

3. Policy Limits and Sublimits 

Confirm whether the available limits remain appropriate for the organization’s size and potential losses. Review specific sublimits that may apply to social engineering, funds transfer fraud, privacy events, or other relevant exposures. 

4. Exclusions and Endorsements 

Read the current policy wording carefully, particularly any changes involving AI, privacy, professional services, cybercrime, and third-party liability. Ask questions about exclusions or endorsements that could restrict coverage for the business’s actual operations. 

5. Incident Response Resources 

Understand what services are available if an incident occurs, how to contact the insurer or response team, and whether the policy requires particular procedures or providers. 

Knowing how to activate the response process before an incident can save valuable time during a crisis. 

The cyber insurance market continues to offer opportunities for businesses to secure coverage, but stable pricing should not be mistaken for an absence of risk. 

AI is making cybercrime more sophisticated while introducing new questions about professional liability, privacy, and business decision-making. At the same time, many smaller businesses remain without standalone cyber coverage, leaving them potentially exposed to losses they may struggle to absorb. 

The best approach combines practical cybersecurity controls, thoughtful AI governance, and a careful review of insurance terms. 

At Professional Liability Insurance Group, we help businesses evaluate their insurance needs, understand potential coverage gaps, and explore solutions that reflect their operations and emerging risks. 

If your business has adopted AI tools, changed how it handles customer information, or has not reviewed its cyber coverage recently, contact Shayne Bevilacqua to discuss your options.