What your business risks today are not what they were five years ago. Artificial Intelligence is changing businesses. Cyber threats grow increasingly complex. Jury awards have reached a historic high. Insurance companies are noticing the trend.

Business owners are having tough conversations with their insurance advisors because of these changes. The coverage you purchased in the year 2020 may not meet your requirements in the year 2026. Here are the reasons one should keep in mind.

The AI Factor: New Tools, New Exposures

AI has moved from buzzword to business necessity. Companies use AI for hiring, customer service, product development, and decision-making. But each use case creates liability exposure.

AI in Hiring Creates Discrimination Risk

Using AI to shortlist job applicants seems quite efficient. However, it brings danger. Disabled applicants may get filtered out by these tools. The outcomes they generate are also biased related to race, gender, or age.

EEOC has taken note. A case was brought against a company for using AI screening software that violated the Americans with Disabilities Act. The company agreed to settle for hundreds of thousands. (Source)

Here is the problem for you. Your standard Employment Practices Liability Insurance (EPLI) policy might not cover AI-related claims. Insurers are scrutinizing how businesses use AI in hiring. They want to see training programs and clear policies in place.

What do you need to do? Document your AI screening process. Have a human review decisions. Train your team on anti-discrimination laws. And ask your insurer whether your EPLI policy covers AI-related claims.

AI Misrepresentation Triggers D&O Claims

Companies that overstate their AI capabilities face shareholder lawsuits. This is a growing trend. Between 2020 and 2025, plaintiffs filed 53 securities class actions with allegations related to AI use. (Source)

AI is now a bigger class action trigger than cryptocurrency, COVID-19, and cybersecurity.

The SEC is also cracking down. They recently settled charges against a restaurant technology company for making false statements about its AI product. Investment advisers face enforcement actions for misleading AI disclosures. (Source)

For directors and officers, this is a wake-up call. Your D&O policy may not cover claims arising from AI misrepresentation. Underwriters now ask specific questions about your AI use and disclosures.

What should you do? Review your marketing materials and investor communications. Make sure your AI claims are accurate. Talk to your insurance advisor about D&O coverage for AI-related claims.

AI in Operations Creates Coverage Gaps

Using AI to control machinery? It might cause bodily injury. Using AI for job interviews? It might lead to discrimination claims. Your general liability policy might not cover these scenarios.

The insurance industry is still catching up. Some carriers now offer AI-specific endorsements to address emerging risks. But many businesses do not know they need them.

What this means for you:

• Review how your business uses AI
• Document your AI systems and their purpose
• Ask your insurer about AI coverage gaps
• Consider AI-specific endorsements

Cyber Threats: More Attacks, Higher Costs

Cyber insurance used to be optional. Not anymore. The threat landscape has changed dramatically.

What a Data Breach Actually Costs

A data breach does more than damage your reputation. It hits your wallet. Hard.

The cost of a data breach in the United States is substantial ($9.36 million in 2024). Large businesses face even steeper costs. Cyber claim severity for large companies has risen in recent years.

Ransomware remains the most expensive claim type. Criminals lock your systems and demand payment to release them. Average losses from ransomware run into the hundreds of thousands of dollars.

But ransomware is not the only threat. Business email compromise (BEC) and funds transfer fraud (FTF) are major problems. These attacks trick employees into sending money to criminals. They are old-fashioned email crimes, but they are devastating.

One broker noted that carriers now see claims of $100,000 or $200,000 on policies with $5,000 premiums. Many claims involve social engineering fraud and invoice manipulation.

The Good News: Businesses Are Fighting Back

Despite rising threats, there is progress. A record percentage of businesses targeted in ransomware incidents refused to pay in 2025. Improved backups and incident response plans give companies leverage.

Overall claims frequency is up. But average severity is down. Businesses are getting better at containing damage.

What this means for you:

• Cyber coverage is not optional. It is essential.
• Read your policy carefully. Social engineering and funds transfer fraud may have sub-limits.
• Implement dual-authorization protocols for wire transfers.
• Test your incident response plan regularly.

Rising Liability Exposures and Nuclear Verdicts

Liability insurance is getting more expensive and harder to find. The reason? Jury awards have gone through the roof.

The Age of Nuclear Verdicts

A “nuclear verdict” is a jury award of $10 million or more. These used to be rare. Now they are common.

The industry now sees “thermonuclear verdicts” of $100 million or more. Nuclear verdicts have tripled since 2020. Thermonuclear verdicts have grown even faster.

Why is this happening? Juries are awarding larger damages. They assume insurance companies have unlimited money. This is called social inflation.

General liability rates are rising. Commercial auto rates are increasing. Lead umbrella rates are up for standard businesses and even higher for higher hazards. Accounts with losses face even steeper increases.

Insurers are reducing capacity. Companies that offered high excess layers now offer lower limits.

Commercial Auto: A Decade of Rising Rates

Commercial auto insurance has seen rate increases for ten years. It remains the biggest problem in obtaining excess liability coverage.

Why? Auto accident claims are expensive. Repair costs are up. Medical costs are up. And juries award massive damages in trucking accidents.

Average loss incurred is up from the prior year.

What this means for you:

• Expect higher liability premiums at renewal
• Consider higher self-insured retentions to manage costs
• Review your umbrella and excess limits carefully
• Document safety programs and training

Small Businesses Are Underinsured

Here is an alarming statistic: the vast majority of small businesses in the U.S. are underinsured (77%). That number is up 2% from prior years. (Source)

Despite many small businesses seeing revenue increases, they are not updating their coverage.

Why Small Businesses Skip Coverage

Surveys reveal troubling misconceptions. Many small business owners cannot accurately describe what a General Liability policy covers. They fail to describe Professional Liability coverage correctly. They do not understand what a Business Owner’s Policy covers.

Many business owners mistakenly believe:

• A GL policy covers fire or flood damage on their property
• Professional Liability covers slip-and-fall accidents
• Their business is too small to be targeted by cybercriminals

None of these beliefs are true.

The Cost of Being Underinsured

EPLI claims against companies with fewer than 500 employees can lead to defense and settlement costs over $125,000. For a small business, that is devastating.

A single harassment or discrimination claim can cost hundreds of thousands of dollars in defense and settlement. Many small businesses cannot recover from that kind of hit.

Consider this example. A small retail store has a GL policy with $1 million in coverage. A customer slips and falls. The jury awards $2 million. The store is on the hook for the extra $1 million. That store will probably close.

What this means for you:

• Do not assume your current coverage is enough
• Review your policies annually
• Ask questions. Insurance terminology is confusing. Your agent should explain it clearly.
• Update coverage as your business grows

The Insurance Industry Is Responding

Insurers are adapting to these new risks. Here is how.

Stricter Underwriting

Underwriters are asking more questions. They want to see:

• Your cybersecurity protocols
• Your AI governance policies
• Your safety training records
• Your claims history

They are also reducing capacity. You might find it harder to get the coverage limits you need.

Higher Premiums

Rates are going up across most lines of business. General liability, commercial auto, and umbrella coverage are all more expensive. This is a direct result of higher claim costs.

New Products and Endorsements

Some carriers are offering new products. AI-specific endorsements are emerging. Cyber insurance policies are evolving. Employment practices coverage is expanding.

But these products are not standard. You need to ask for them.

What Business Owners Should Do Now

The risk environment is changing fast. Here is a practical action plan.

1. Schedule a Coverage Review

Do not wait for renewal. Call your insurance advisor and schedule a comprehensive review. Discuss:

• How you use AI in your business
• Your cybersecurity measures
• Your fleet size and driving records
• Any new products, services, or locations

2. Ask Specific Questions

Do not assume coverage exists. Ask:

• Does my policy cover AI-related discrimination claims?
• Is social engineering fraud covered?
• What are my sub-limits for cyber events?
• Do I have enough umbrella coverage for a nuclear verdict?

3. Document Everything

Insurers want to see that you manage risk. Document:

• Employee training programs
• Cybersecurity protocols
• Safety procedures
• AI governance policies

Good documentation can lower your premiums and improve coverage terms.

4. Consider Specialized Coverage

Standard policies may not address emerging risks. Consider:

• Cyber insurance with adequate limits
• Employment Practices Liability Insurance (EPLI)
• Excess liability coverage
• AI-specific endorsements

The Changing Role of Your Insurance Advisor

Your relationship with your insurance advisor should be changing too.

In the past, you might have called your agent once a year at renewal. That is not enough anymore.

Today, your advisor should be a partner. They should:

• Help you identify emerging risks
• Explain complex coverage options
• Advocate for you with underwriters
• Review your coverage as your business evolves

A good advisor will ask you questions you have not thought of. They will challenge your assumptions. They will push you to buy coverage you think you do not need.

Do you have that relationship? If not, it is time to find a new advisor.

The Bottom Line

The insurance conversation has changed. It is no longer about checking a box. It is about understanding real risks and buying coverage that actually protects you.

AI creates new exposures. Cyber threats are more expensive. Jury awards are larger. And most small businesses do not have enough coverage.

The good news? You can take action. Review your coverage. Ask tough questions. Work with an advisor who understands these new risks.

Your business deserves protection that matches the risks you actually face. Do not wait until a claim to find out you are underinsured.

Contact Gonzalez Insurance

Gonzalez Insurance provides Business Insurance for small businesses across the USA. We offer:

1. Apartment Building Insurance
2. Condo Association Insurance
3. Commercial Building Insurance
4. Worker’s Compensation Insurance
5. Commercial Auto Insurance
6. Retail Store Insurance
7. Employment Practices Liability Insurance
8. Customized Insurance

New risks demand new conversations. Let us help you understand your exposures and build coverage that works. Contact us today to schedule your coverage review.

FAQs

1. Does my business insurance cover risks from using AI?

Standard policies usually do not cover AI-related claims like discrimination or misrepresentation. You need to ask your insurer about AI-specific endorsements to close these gaps.

2. Is cyber insurance really necessary for my small business?

Yes. Data breaches, ransomware, and social engineering fraud are common. Cyber insurance covers response costs, legal fees, and ransomware payments. Most small businesses need it.

3. Why are my liability insurance premiums going up so much?

Insurers face higher claim costs from nuclear verdicts, social inflation, and rising medical expenses. They pass these costs to policyholders through rate increases.

4. What happens if I do not have enough liability coverage?

You pay the difference between your policy limit and the judgment out of pocket. For a small business, a single large verdict can mean bankruptcy.

5. How can Gonzalez Insurance help me review my current business coverage?

Gonzalez Insurance offers customized business insurance reviews for small businesses across the USA. Contact us to schedule a comprehensive coverage review and identify gaps in your protection.