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On March 22, Gallagher Re released a white paper titled “Smart Systems, Blind Spots: Rethinking Insurance for the AI Era,” produced in association with the Massachusetts Institute of Technology and AI underwriter Testudo Global Inc. The report’s core finding: AI related liabilities have created a new category of enterprise exposure that sits in the gaps between every major existing insurance product, including cyber, technology E&O, product liability, and commercial general liability.

The specific coverage failures are granular and commercially actionable. Cyber insurance may respond to an AI enabled attack (e.g., AI assisted phishing), but does not cover liabilities arising from AI outputs such as hallucinations, defamation, or intellectual property infringement, a distinction Gallagher Re describes as AI as an “attack vector” versus AI as a “source of liability.” Technology E&O was designed to protect technology providers, not deployers, which means most enterprises using third party AI tools are structurally uncovered for financial losses, defamation, or data disclosure caused by those tools’ outputs. CGL may respond to some third party claims but is increasingly being tightened through new generative AI exclusions, with hallucinations and algorithmic failures expressly falling outside traditional scope. Ed Pocock, Global Head of Cyber Security at Gallagher Re, summarized the challenge as AI introducing a new class of risks that traditional insurance policies were never designed to address.

Separately, Gallagher Re’s data quantifying the litigation trajectory is striking: GenAI related lawsuits in the U.S. surged by 978% from 2012 to 2025, with year over year acceleration from 59% in 2023 to 2024 to 137% in 2024 to 2025. Cumulative GenAI related lawsuits in the U.S. climbed past 700 between 2020 and 2025. The leading claim categories: patent infringement (11.9% of cases), copyright infringement (11.2%), and personal injury, primarily privacy violations and misuse of personal data, at 10.2%. A separate Gallagher survey of 1,250 companies found that 57% identified AI errors, misinformation, and hallucinations as their leading risk concern; legal and reputational risks followed at 56%; data protection and privacy at 55%.

The insurance market response is emerging but fragmented. Gallagher Re identifies standalone AI insurance products from Munich Re, Armilla, and Testudo that target model underperformance, hallucinations, and third party liability, alongside endorsements being introduced to cyber and professional indemnity policies, but stresses that ambiguity persists and further product development is needed.

This report arrives at the intersection of two storylines TIC has been tracking. Our March 23 digest covered the CIRCIA reporting mandate and its implications for cyber underwriting data, and our March 25 deep dive examined Chubb’s 85% automation commitment and the question of whether AI can replace MGA underwriting judgment. The Gallagher Re/MIT paper adds a third dimension: AI is not just transforming how carriers operate, it is generating an entirely new liability class that existing products cannot cleanly cover. The 137% year over year lawsuit growth in 2024 to 2025 means claims activity is not theoretical; it is materializing now and will hit carriers through existing policies before new AI specific products are broadly available.

For product management and innovation leaders, this is the most authoritative industry framing to date of where coverage gaps exist in AI liability. Product teams need to audit existing policy language against the specific AI failure modes identified: hallucinations, model drift, algorithmic bias, adversarial manipulation, and data poisoning. For commercial lines underwriters, the liability allocation dynamic is the key practical insight: AI vendors are structurally limiting their own exposure through contract language, which means liability is flowing to AI deployers, enterprise companies that are existing commercial insureds. For reinsurers and CAT management teams, Gallagher Re’s aggregation warning, that faults in widely adopted AI models could trigger correlated claims across multiple policyholders simultaneously, is a systemic concentration risk distinct from traditional catastrophe aggregation.

The tariff impact on personal auto insurance cost structures crystallized as the dominant near term personal lines pricing challenge during the week. The American Property Casualty Insurance Association has projected that the 25% tariffs on imported cars and auto parts could increase personal auto insurance claims costs by $7 billion to $24 billion annually across the industry. The range reflects uncertainty about tariff duration and supply chain adaptation, but both endpoints are material: the low end represents roughly 2.5% of the U.S. personal auto premium pool, and the high end is roughly 8.5%.

The mechanism is direct: tariffs on imported cars and components raise both repair costs and total loss replacement values simultaneously. J.P. Morgan’s analysis confirmed that personal lines insurers are more exposed than commercial carriers because their underwriting is concentrated in physical repair and replacement, auto parts, vehicles, and building materials, rather than liability diversification. Allstate and Progressive were specifically cited as carriers with high U.S. market concentration and therefore elevated exposure to tariff driven margin pressure. The Triple I’s chief economist Dr. Michel Léonard has noted that lines with a physical emphasis on repair, rebuild, and replace, which characterizes nearly all of homeowners and personal auto, are the most directly affected by tariff driven input cost inflation.

The timing is particularly punishing. As we covered in our March 16 and March 23 digests, personal auto was just beginning to see competitive pricing pressure and the first rate decreases, including Allstate’s Louisiana cuts exceeding 15% since November and Florida’s top five carriers signaling an average 8% decrease for 2026. Tariff driven loss cost inflation now threatens to re accelerate severity precisely as rate adequacy conversations were moving toward neutral.

The reform driven softening we tracked through Florida (March 9) and Louisiana (March 16 and March 23) assumed that improved loss ratios would hold. Tariff driven severity inflation introduces a new variable that the competitive cycle has not priced in. Carriers that filed rate decreases based on trailing loss data from 2025 may find themselves chasing severity that emerged in Q2 2026 repair invoices. The APCIA range ($7B to $24B) needs to be disaggregated into carrier specific impact based on vehicle mix, state exposures, and parts sourcing concentration. Markets with higher proportions of newer vehicles, European brand cars, or luxury segments will see disproportionate replacement cost impact. For product management executives, usage based insurance and telematics programs face a specific challenge: they were designed to reduce frequency risk, but tariff driven severity inflation is frequency agnostic. For marketing and distribution teams, rate increases driven by tariff inflation are politically exposed, and carriers will face consumer backlash and regulatory scrutiny in states with proactive insurance commissioners.

Two parallel MGA narratives collided this week in ways that advance what TIC has been tracking since Greenberg’s March 17 shareholder letter. On one side: PE capital and scale building accelerated. Genasys Tech’s data summary confirmed that six MGAs crossed the $1 billion premium mark in 2024, double the three that did in 2023, and that AM Best now counts 19 MGAs producing over $500 million in direct premiums written, up from 12 the prior year. Fronting carriers led by Accelerant, Sutton, Transverse, and State National collectively wrote approximately $28 billion in gross premiums supporting MGAs in 2024, up 26% year on year, having grown their share of total MGA premium from roughly 6% to over 20% since 2020. Of note: 198 MGAs that launched after 2022 already account for 14% of total MGA market premiums.

On the other side: AM Best announced on March 27 that it will moderate dedicated panels focused specifically on MGAs and AI governance at the InsurTech America Symposium, scheduled for April 13 to 14 in Hartford. This follows Lloyd’s January 2026 Market Oversight Plan, which assigned each managing agent a dedicated DA Oversight Manager and stated explicitly that delegated authorities represent a significant share of market GWP and that deterioration can be less visible and harder to remediate. Insurance Times published a pointed analysis arguing that new MGAs must choose between two defensible identities: pure distribution advantage or true underwriting insight. Vertafore’s 2026 MGA outlook echoed this, warning that even in a well capitalized market, individual MGAs may lose support if performance, reporting quality, or strategic alignment falters.

This follows our March 23 coverage of Greenberg's MGA critique and our March 25 deep dive examining whether Chubb's automation roadmap can replace the underwriting judgment MGAs provide. This week's data adds the structural evidence to what Greenberg framed as a judgment call.

For carrier executives in strategy and distribution, the combination of Greenberg’s public critique, Lloyd’s DA Oversight Managers, AM Best governance panels, and Vertafore’s warning about capacity withdrawal on performance grounds tells a coherent story: the era of expansive MGA capacity provision based on growth narratives is ending. For MGA leaders, the Insurance Times framing is the most actionable strategic input: choose between distribution advantage and underwriting insight is not a negative verdict on the model, but it is a demand for clarity of identity. For PE investors and M&A teams, the valuation premium for MGA platforms will increasingly track to demonstrated underwriting performance and data infrastructure quality, not simply premium volume.

Munich Re published its flagship Cyber Insurance: Risks and Trends 2026 report during the week of March 23, with major coverage by Reuters, Reinsurance News, and MarketScreener on March 25 to 26. The headline framing: if cybercrime were a country, it would be the third largest economy in the world. By 2028, cybercrime is projected to cause damages totaling $14 trillion, exceeding the combined economic output of Germany, Japan, and India.

Munich Re’s claims data reveals the internal loss architecture of the cyber insurance market. First party claims remain dominant at 62% of active claims versus 38% for third party liability. The primary drivers of insured losses are ransomware, data breach, business email compromise, and DDoS, but Munich Re explicitly states that threat scenarios will develop further, going far beyond ransomware, particularly amid current geopolitical tensions. The sector distribution of cyberattacks in 2025 shows government entities as the most targeted, followed by manufacturing and technology.

A finding that connects directly to our March 16 coverage of Coalition’s claims data and the data theft first extortion shift: Munich Re emphasizes that despite public attention focusing on large corporates, most cyber incidents and claims it records involve micro companies and SMEs. Jürgen Reinhart, Munich Re’s Chief Underwriter for Cyber, stated that the lion’s share of cyber risks is still uninsured even though they are insurable, and that nearly 9 out of 10 C level respondents do not feel their company is adequately protected against attacks.

The $14 trillion damage projection versus the current roughly $10 to $15 billion in global cyber insurance premiums illustrates the scale of the protection gap and the commercial opportunity. This reinforces the storyline we have been building since our March 9 coverage of Coalition’s 86% ransom refusal rate and March 16’s analysis of data theft first extortion becoming the default playbook. Munich Re’s SME concentration finding is a direct challenge to carriers that have focused underwriting and distribution investment on large corporate and middle market accounts. The SME segment is underserved, generates the majority of actual claims volume, and represents the largest addressable growth opportunity in the cyber market.

For commercial lines leaders with bundled cyber offerings, Munich Re’s data reinforces that standalone cyber is not displacing cyber endorsements in the SME segment; SMEs are not buying either. Product simplification, bundling with commercial multi peril or BOP, and accessible pricing models are the structural solution Munich Re’s data implies. For reinsurance and accumulation teams, the geopolitical dimension of Munich Re’s threat landscape framing, explicitly linking state sponsored actors and geopolitical tensions to cyber threat escalation, means that cyber accumulation modeling in 2026 needs to incorporate geopolitical scenario inputs, not just historical frequency severity data.

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