As technological advancements become more ingrained in the development of entirely new industries and change the nature of existing industries, accessing needed coverage for complex risks through surplus lines carriers will become more of the path to success.
The development of new technologies, growth in e-commerce, and the expanding global economy have made robust risk management strategies a necessity. This has boosted the demand for specialized insurance products to cover the exposures related to expanding technology-driven and evolving business operations.
Coverages for many complex exposures, especially newer ones, are not readily available through standard market insurers, elevating the need for the specialized coverage solutions that are prevalent in the surplus lines market. Surplus lines insurers have always remained ready, flexible and innovative amid market shifts and emerging exposures. Those characteristics are certain to play heavy in three key areas of business in which technology is forcing rapid shifts: artificial intelligence, autonomous vehicles and life science risks.
Artificial Intelligence Exposures
Businesses across virtually all industries are rapidly integrating generative artificial intelligence (GenAI) into their internal operations and into customer-facing products and services. As such, it is vital for insurers and insurance intermediaries to understand the nature of GenAI use for their current insureds and prospective policyholders to have the most comprehensive understanding possible of the depth and nature of potential risks.
Depending on the type of operation and level of integration of GenAI, risks can include biased recommendations, defective outputs infringement on intellectual property, and cybersecurity concerns. There are also risks associated with reputational damage, breach of privacy with respect to the scores of information and data used in AI models, and falling short of stated regulatory requirements governing AI use.
Because of the nascent level of comprehensive GenAI use for many companies, from an insurance company perspective, in addition to the lack of claims data available for analysis and from which to gain insights, the greatest exposure that GenAI use may present is the fact that the exposure will remain static long enough to be defined, priced, and monitored. This reality creates challenges in many ways, including the following:
- Insurance pricing needs pools of reasonably similar risks, and GenAI resists that or, at the very least, makes it difficult. This is because the same AI model can present completely different exposures depending on what it is connected to, what it is allowed to decide, and the degree and effectiveness of human oversight involved.
- An insured’s exposure will change after an insurer binds coverage. As the GenAI provider updates its model, the insured connects new data or hands the system more autonomy, which can lead to potentially loosened “guardrails.” A claim from one version of a GenAI model most likely tells an insurer relatively little about the next one. It is unquestionable that more loss data is helpful, however, because data on something that is a moving target does not accumulate in a way that fosters pricing confidence the way it does for stable risks.
- The same AI failure can also result in potential losses for several lines of coverage at once: such as technology errors & omissions (E&O) liability, general liability, employment practices liability, directors & officer’s liability, etc. This can lead to coverage disputes and allocation issues and potentially implicate more than one policy or policy limit rather than producing a clean claim under one clearly identified coverage.
With respect to AI exposures, admitted insurers are focused on implementing the best, most absolute AI exclusions and limiting coverage in traditional general liability policies. The insurance industry is actively trying to guard against implicitly covering AI-related claims through legacy technology E&O policies. Burgeoning exposures such as AI “hallucinations,” model performance deterioration, and data poisoning are often uninsurable through standard admitted carriers.
The surplus lines market, by contrast, is the primary avenue currently available for obtaining affirmative, specialized coverage options available for AI and GenAI exposures using its freedom of rate and especially its freedom of form. Some carriers are offering standalone AI liability policies covering mechanical failures, algorithmic deviations, and losses stemming from faulty AI decisions.
Some wholesale brokers or other delegated underwriting authority enterprises (DUAEs) with niche expertise have been able to source specialized endorsements to add to existing cyber or E&O policies to cover algorithmic bias or intellectual property infringement. There are also some non-admitted insurers that have developed innovative programs and underwriting facilities specifically geared to offering coverage solutions for chosen companies that are developing or utilizing AI.
Driverless Technologies
Autonomous vehicle (AV) technology has moved from the idea stage to research labs and now onto public roadways, creating a unique conundrum for insurers because the exposures involved are unlike other exposures the insurance industry has evaluated until that point.
Driverless technology exposures exist at the intersection of product liability, automobile liability, and risks involved with faulty software because accidents in tech-driven vehicles could be caused by software errors, manufacturing defects, network outages, GPS flaws, failing sensors, or even cyberattacks. Actuarial data has been available for decades for human-driven vehicles, but underwriting and pricing for a fleet of vehicles that operate without drivers presents a very different set of risks.
Interconnected Risks
Rising technological complexity and interconnectedness could vastly increase the cyber vulnerability of autonomous trucks and fleet operators. Because associated cyber risk potential for driverless fleet operators would increase significantly with multiple targets and potential points of access, cyber insurance would become more integral to the required insurance program and account for a greater proportion of a risk insurance premium for autonomous truck owners/operators than what is now the norm for traditional commercial trucking risks.
The commercial automobile segment has been a consistently unprofitable P/C line of coverage for an extended period, making it more understandable that the coverage for driverless technologies will, at least initially, be found in the surplus lines market. A separate but equally important challenge for underwriters of autonomous vehicles includes the fast-evolving regulatory landscape.
At the present time, 42 states and the District of Columbia have enacted some sort of AV-related legislation. However, requirements by state vary widely. The lack of continuity from state to state complicates the coverage needs of companies using driverless auto technology, ultimately making the surplus lines market the most suitable option to provide needed coverage.
Pharmaceutical, Biotechnology, and Life Sciences Risks
The complex risks involved with unique, often unknown exposures presented by experimental drug manufacturers necessitate expert underwriting and tailored policies. Pharmaceutical risks, especially ones involving new, innovative products, have limited loss histories combined with significant liability loss potential, making traditional insurers reluctant to offer coverage.
To the extent any coverage is offered by an admitted carrier for an insured involved with clinical trials, the carrier will generally exclude coverage for clinical trials involving human subjects.
Entities involved in gene therapy and biogenetics are also best suited for the non-admitted market because they present exposures that cannot be accurately priced using standard actuarial methods; thus they are ill-suited for the standard or admitted market.
Flexibility in Coverage Design
Surplus lines insurers are more adaptable by nature and have the flexibility to design products that cover the exposures they feel can be underwritten and adequately priced and exclude or limit other potential exposures not fitting that profile.
Specialized risks are common in the biotechnology and life sciences industries. The flexibility of insurers, which can craft tailored policies for complex risks, environmental and product liability risks, is integral for biotech companies responsible for the safety and efficacy of pharmaceuticals, medical devices, and other therapies.
As innovative technologies allow for more rapid product development for health, biotech, and life science companies, the needs of entities in these industries will only expand, and the creative expertise of surplus lines insurers will likely be in greater demand.
Surplus lines’ companies are often willing to provide higher coverage limits than admitted carriers. For insureds presenting the type of exposures faced by biotech companies, the expansion of coverage limits across an insurance program encompassing primary and excess coverage basis, this flexibility could be vital.
The underlying complexity of these types of risks creates the potential for them to remain within the non-admitted market, perhaps even when rates are softening.
This article is an excerpt from AM Best’s annual Market Segment Report on the U.S. Surplus Lines Market, which was published on Sept. 14, 2026.
Topics InsurTech Carriers Tech Excess Surplus
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