The Insurance Industry’s Retreat from AI Threatens to Slow Innovation and Adoption

Center for Strategic and International Studies | Gregory C. Allen

State insurance commissioners in the United States approved over 80 percent of insurer requests to exclude artificial intelligence damages from corporate coverage policies on April 23, 2026. This regulatory shift positions insurance carriers as de facto regulators capable of stalling commercial artificial intelligence deployment nationwide. A 2025 Geneva Association assessment revealed that generative AI fails three criteria under the traditional Berliner insurability framework.

Severe information asymmetry prevents underwriters from auditing underlying models or pricing risks accurately. Meanwhile, cumulative corporate litigation related to generative AI expanded by 978 percent between 2021 and 2025. Uninsurable activities effectively become prohibited activities. To resolve this market failure, policy proposals advocate establishing a national incident database at the National Institute of Standards and Technology, forming a state-federal regulatory working group, creating a Price-Anderson-style federal liability backstop, and licensing independent verification organizations. These structural reforms aim to convert private insurance from a deployment barrier into a safety accelerator for emerging technologies.

Comment

Commercial adoption of transformative technology falters when private underwriters cannot quantify exposure under traditional risk frameworks like the Berliner criteria. Institutional capital requires functional risk transfer mechanisms to offset catastrophic tail liabilities across corporate enterprise operations. Without structured indemnification, technology integration transitions from a standard operational expense into an unmanageable balance-sheet liability.

A comparable market deadlock occurred prior to the Price-Anderson Act of 1957, which established statutory liability caps to catalytise private investment in commercial nuclear reactors. Just as early energy utility operators refused to construct reactors without federal indemnification, modern enterprises face insurmountable risk boundaries when deploying uninsurable algorithms. Unless public risk-sharing structures adapt to mirror the Price-Anderson Act of 1957, carrier exclusions will force major firms to halt high-liability automated operations.

Strategic Question for Discussion

If governments introduce a statutory backstop modelled on the Price-Anderson Act of 1957, does public indemnification effectively eliminate carrier incentives to audit enterprise risk, or does it establish the baseline certainty required for commercial adoption?

The pattern suggests that statutory backstops function primarily as a structural catalyst rather than a replacement for private risk assessment. Historical precedent indicates that public liability caps allow commercial underwriters to price everyday operating risks while insulating carriers from catastrophic systemic shocks. My assessment is that pairing a federal backstop with mandatory verification standards will accelerate private underwriting maturity rather than encourage moral hazard.

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