As enterprises rapidly adopt AI, Indian IT services companies are emerging as among the most exposed to a new class of liability risks and are proactively seeking insurance protection for both the company and key leadership.
IT services providers building and deploying AI systems for clients face the highest exposure, particularly under two policies: Directors & Officers (D&O) and Professional Indemnity (PI), experts said.
D&O insurance protects a company’s leadership, such as the CEO and board members, when they are held personally liable for decisions. It covers legal costs, settlements and safeguards personal assets. PI insurance, meanwhile, protects a company’s actual work or services, such as covering claims from clients if an AI system fails to deliver as promised or causes financial loss.
“As this is a new technology, there will be a lot of trial and error,” said Najm Bilgrami, national head-liability lines at Tata AIG General Insurance. “If companies fail to deliver the intended results, it will lead to error and omission claims.”
These risks include failure to meet contractual obligations, delays in delivering AI solutions and incorrect outputs that could lead to financial or operational losses for clients. AI systems that do not comply with industry regulations could also expose IT firms to legal scrutiny, especially in highly regulated sectors, he said.
Indian IT services firms catering to overseas clients are beginning to feel the impact as insurers factor in AI exposure while pricing policies. For instance, D&O insurance premiums for companies with significant international exposure have already risen sharply, said Soumya Shukla, executive partner at boutique law firm ElpeeCo, which specialises in financial services. “If you are a US or EU-facing company, premiums have increased by 30-40%… which is significant for D&O policies,” she said.
Technology PI policies are also becoming harder to obtain as insurers are either reluctant to underwrite them or are pricing the risk aggressively. In some cases, they are rewording policies to specifically exclude AI-related exposure for now, Shukla said.
More importantly, there is an absence of a clear accountability mechanism across stakeholders, which is creating a multi-layered liability problem.
“You cannot price what you cannot quantify. Until insurers understand the boundaries of AI risk, they will keep it outside the core coverage and gradually build specialised products,” she said. In response, insurers are reworking their underwriting frameworks with a sharper focus on how IT companies are deploying AI.
“We are trying to understand how organisations are using AI, whether they are building it in-house or outsourcing, what kind of training employees receive and which industries they are serving,” Tata AIG’s Bilgrami said. “For instance, an error in a payment gateway powered by AI can lead to massive losses within hours.”
