Top 5 AI Risks to Review for Your Business

Artificial intelligence is rapidly changing the way businesses operate. While automation tools have existed for many years, the rise of generative AI is creating a new category of business risk.

Businesses are increasingly using tools such as ChatGPT, Microsoft Copilot, and Google Gemini to draft professional communications, analyse data, generate reports, assist with decision-making, and automate customer interactions. While these tools can deliver significant efficiency gains, they can also introduce cyber, compliance, privacy, and reputational risks if not properly managed.

Here are the top 5 key AI risks every business should review.

1. Data privacy and confidential information exposure

One of the biggest risks associated with AI tools is the handling of sensitive business information. Many generative AI platforms rely on user prompts and uploaded data to generate responses. If employees enter confidential client information, financial records, contracts, or proprietary business data into public AI tools, that information may be stored, processed externally, or potentially exposed.

What businesses should review

Develop and regularly update internal AI usage policies, ensuring staff are across them
Train all staff on how AI should be used within your business
Work with IT to control employee access to public AI platforms, where required
Review each platform's privacy and data terms and conditions to find the best platform fit for your business

RELEVANT INSURANCE COVERS:

[Further Reading: Why management liability matters - Real Claims]

2. AI-generated errors and "hallucinations"

AI tools can produce responses that sound highly confident, even when the information is inaccurate. These errors, often referred to as "hallucinations", can create significant risks if businesses rely on AI-generated content without human review. Incorrect legal advice, inaccurate financial calculations, misleading marketing claims, or false information provided to customers can all create downstream liability issues.

What businesses should review

Establish approval and review processes for AI generated content
Create human oversight requirements, such as regular accuracy testing and quality control measures
Create documentation around AI-assisted decision making
Ensure AI tools are used to support employee expertise, not replace professional judgement, specialist knowledge, or established review processes

RELEVANT INSURANCE COVERS:

3. AI-powered cyber threats

AI is not only being used by businesses, it is also being used by cyber criminals. Attackers are increasingly using AI to create more convincing phishing emails, fake invoices, malicious code, and automated cyberattacks at scale. In addition, businesses deploying AI internally may unintentionally create new vulnerabilities through poorly secured systems, excessive permissions, or unapproved AI usage by staff.

What businesses should review

Review your current cyber security setup, whether it is up to date and strong enough, including making use of MFA (Multi-Factor Authentication) protections
Phishing and fraud awareness training for employees
Read the terms and conditions and check AI access permissions and integrations before allowing employee use
Monitor unauthorised AI tool usage through access controls, approved enterprise AI platforms, and system-level visibility tools

RELATED INSURANCE COVERS:

Cyber Liability and Privacy Protection Insurance

[Further Reading: Don't wait for a cyber breach - why now is the time to review your cyber insurance]

4. Compliance and regulatory uncertainty

Many businesses are still unclear about their compliance obligations when it comes to AI use. In Australia, there is currently no single standalone AI law. Instead, businesses must navigate a mix of existing legal obligations, alongside emerging voluntary AI safety standards. As AI adoption accelerates, many organisations are finding it challenging to keep internal governance, policies, and compliance processes up to date with the pace of change.

What businesses should review

Review existing internal governance and compliance frameworks to ensure AI usage is appropriately addressed
Establish formal AI procurement and approval processes across the business
Maintain appropriate record-keeping and audit trails for AI-assisted work and decision making
Keep across industry-specific regulatory obligations and evolving guidance relating to AI usage

RELATED INSURANCE COVERS:

5. Reputational damage

AI-related mistakes can quickly become public and have a direct impact on customer trust and brand reputation. This may include AI-generated content containing inaccurate or misleading information being published externally, marketing material that does not align with brand or compliance requirements, or employees sharing confidential business information through public AI platforms.

What businesses should review

Develop crisis management and incident response plans that include AI-related scenarios and communications risks
Establish review and approval processes for externally published AI-generated content and marketing material
Monitor public-facing communications and social channels for inaccurate, misleading, or non-compliant AI-generated content
Review brand protection, cyber response, and reputational risk management strategies relating to AI usage

RELATED INSURANCE COVERS:

[Further Reading: Professional Indemnity Insurance - Common myths explained]

AI Adoption Should Include Risk Management

Generative AI should be approached as a strategic capability rather than a short-term productivity tool, with clear alignment to broader business processes, governance frameworks, and long-term operational objectives. It is also important to carefully assess which AI platforms are being used across the organisation. While free public AI tools can offer accessibility and convenience, they may present greater privacy, security, and governance risks where sensitive business or customer information is involved. In contrast, enterprise-grade or industry-specific AI solutions may provide enhanced controls, data protections, and compliance features better suited to professional and regulated environments.

How Coverforce can help

If you're reviewing how AI is impacting your business risk profile, contact Coverforce today to discuss your current insurance program and ensure your Cyber, Professional Indemnity and Management Liability cover remains appropriate.

The information provided in this article is of a general nature only and has been prepared without taking into account your individual objectives, financial situation or needs. If you require advice that is tailored to your specific business or individual circumstances, please contact Coverforce directly.

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