Beazley expands cyber cover for AI malfunctions and regulatory risks

FTSE 100 insurance firm Beazley has introduced a new cyber insurance policy aimed at businesses facing unintentional regulatory breaches and financial losses due to AI system failures. Alessandro Lezzi, Beazley’s head of cyber risks, disclosed this development while speaking to City AM. The insurance company has seen the evolving threat landscape due to AI and feels obliged to explicitly include coverage for AI-related incidents in its existing policies. Lezzi emphasized that the market, as a business, has a responsibility to provide such coverage.

The new coverage encompasses two facets within Beazley’s cyber insurance policies. It addresses the unintentional misuse of AI, which could result in non-compliance with AI legislation, leading to regulatory allegations, fines, or investigations. The second aspect covers any business interruption or earnings loss that arises from the necessity to temporarily shut down an AI system because of performance issues.

Cyber insurance has proven to be a lucrative market in recent years, with high-profile cyberattacks on companies like M&S, Harrods, and Jaguar Land Rover unveiling a gap in coverage. Lezzi highlighted the Jaguar Land Rover incident, where the company halted production and retail operations in September last year due to a cyberattack, as a significant event that demonstrated the necessity for cyber and AI insurance as a mandatory policy.

As AI presents new challenges, particularly in the realm of agentic AI, underwriters and insurers are grappling with quantifying and pricing the associated risks. Lezzi pointed out that the insurance market is currently underpricing the growing risk exposure caused by AI and geopolitical shifts, with prices decreasing internationally while exposure increases. By launching the new AI cover, Beazley aims to create a sustainable market and product, ensuring consistent pricing and sustainability over time.

Lezzi concluded by expressing his belief that AI-related cover should become a standard policy for companies, especially considering the evolving nature of threats. He noted that the combination of AI and quantum computing will introduce additional risks, further emphasizing the need for comprehensive AI insurance.