Insurance for AI startups: what to cover as you scale

Reviewed by Matthew Bartlett, Director, Apex Insurance Brokers Limited · Last reviewed 2026-08-06

If you are building with machine learning, your risk profile does not look like a normal software company's. Your product can be confidently wrong. Your training data may carry someone else's rights. Your model can behave in ways you did not explicitly program and cannot fully explain. Insurers are still working out how to price and word cover for all of this, which means the gap between "a policy that pays" and "a policy that looks fine until you claim" is unusually wide right now.

This guide maps the covers that actually matter for an AI or ML startup, and — because your exposures change as you raise — what typically becomes relevant at seed, Series A and Series B. It is written for founders who want to understand the shape of the problem before they talk to anyone, not to sell you a stack of policies you do not need yet.

Why AI startups are a different insurance problem

Traditional professional indemnity was built around human error: the advice that was wrong, the code that had a bug. AI adds failure modes that older policy wordings were never drafted for. A model can hallucinate an answer a customer relies on. It can produce a discriminatory or defamatory output. It can be trained on data whose licence never permitted that use. And because behaviour emerges from data rather than explicit rules, "did you do something negligent?" — the question most liability cover turns on — is genuinely harder to answer.

The honest position, which we would rather state plainly than paper over, is that AI-specific insurance is an emerging area. Some insurers are extending established wordings to sit more comfortably around AI risk; a few specialist products exist. Terms, exclusions and appetite differ significantly between markets, and they are moving. That is exactly why it pays to have someone reading the wording against how your product actually works, rather than buying the first policy that mentions "technology".

Professional indemnity and tech E&O: your model's mistakes

Professional indemnity (PI), often written as technology errors & omissions (tech E&O) for software businesses, is the cover that responds when a client suffers a financial loss because your product or service failed to do what it was meant to. For an AI company this is usually the first policy that genuinely bites, because your outputs are the product and clients act on them.

The questions worth pressing on when you look at PI/E&O wording:

• Does it respond to losses arising from model outputs and decisions, not just classic coding defects?
• How does it treat algorithmic bias or discriminatory outputs — covered, silent, or excluded?
• Are there carve-outs for "guaranteed performance" or accuracy claims you make in your marketing or contracts?
• Does the definition of your professional services actually describe what you do, including any human-in-the-loop or fully automated elements?

Your customer contracts and this policy need to be read together. If you promise a specific accuracy level or outcome in an MSA, and your PI wording excludes exactly that, you have bought a false sense of security. This is the single most common mismatch we see with AI clients. Our professional indemnity guide for tech companies goes deeper on how these wordings are structured.

Larger or more complex risk? Speak directly to a director — call 0117 325 0027 or email info@apexinsurancebrokers.co.uk.

Intellectual property: training data and infringement

IP is where AI risk gets genuinely thorny, and where the legal landscape is still settling. Two exposures dominate. The first runs inbound: your model is trained on data, and if some of that data — text, images, code — was used without the rights to do so, you may face an infringement claim. The second runs outbound: a model's output could reproduce protected material, or a customer could allege your product infringes their rights.

Cover for IP disputes is not uniform. Some PI policies include a measure of intellectual-property infringement defence; dedicated IP insurance exists but is a specialist market with its own conditions. Because the underlying law around training data and generative outputs is actively developing in the UK and elsewhere, we would strongly encourage founders to pair insurance thinking with specialist IP legal input — insurance manages the financial consequences of a dispute, it does not resolve whether your data practices are sound in the first place. Good provenance records for your training data are worth more than any single clause.

Cyber: data, security and the incidents that follow

AI companies tend to hold a lot of data and to be attractive targets, which makes cyber cover load-bearing rather than optional. A cyber policy typically responds to data breaches, ransomware and network security failures, and — importantly — funds the response: forensic investigation, legal costs, notification to affected individuals and regulators, and business interruption.

There is meaningful overlap between cyber and PI, and where a given incident lands between the two policies matters enormously at claim time. A breach of customer data caused by a security failure is usually cyber territory; a flawed output that causes a client loss is usually PI. Getting both from a broker who lines the wordings up so nothing falls down the gap is the whole point. If you are early and only budgeting for one thing, this is a strong candidate — our cyber insurance guide for startups covers what these policies include and expect of you.

Directors' & officers': the cover your investors will ask about

Directors' & officers' (D&O) insurance protects the personal assets of your directors and officers if they are sued for decisions made running the company — from regulatory investigations to claims by investors, employees or competitors. As you take on outside capital and a board, the people making decisions carry real personal exposure.

To be clear on a point founders often get wrong: D&O is not a legal requirement. There is no statute compelling it. What happens in practice is that investors require it — it is a common condition in term sheets, typically appearing around Series A when professional investors take board seats and want their directors protected. So while the law does not mandate D&O, your Series A term sheet very well might. It is worth having the conversation before the round rather than scrambling during the closing checklist. We explain the mechanics in our guide to directors' & officers' insurance.

Product considerations and the cover the law does require

If your AI is embedded in a physical product, or your outputs drive decisions with real-world safety consequences, product liability moves up the agenda — and the line between "software error" and "product defect" is another area regulators and courts are actively working through. This is worth flagging early to a broker rather than assuming your PI absorbs it.

One requirement genuinely is set by law. Once you employ staff in the UK, employers' liability insurance is compulsory under the Employers' Liability (Compulsory Insurance) Act 1969, subject to narrow exceptions such as certain family-only or closely-held arrangements. There are penalties for trading without it while you have employees. As soon as your first hire signs, this stops being optional — a small, cheap policy that is nonetheless one of the few you are legally obliged to hold.

What to add at each funding stage

You do not need everything on day one, and buying too much too early wastes runway. As a broad shape — every company is different, so treat this as a starting point for a conversation, not a checklist:

• Pre-seed / seed: Get the basics right. Professional indemnity / tech E&O once you have paying customers or contracts that demand it, cyber given the data you hold, and employers' liability the moment you hire. Start keeping clean records of your training-data sources now — it is far easier than reconstructing them later.
• Series A: Expect D&O to come onto the agenda, frequently as an investor condition in the term sheet. This is also the point to revisit PI limits, because your contracts are getting bigger and customers are demanding higher limits of indemnity. Illustrative limits such as £1m, £5m or £10m come up in customer requirements — the right number is driven by your contracts, not a rule of thumb.
• Series B and beyond: Scale the whole programme. Higher limits across PI and cyber, D&O structured for a larger board and more investors, closer attention to IP and product exposures as your footprint and international sales grow, and a proper look at how your covers interlock. This is where a fragmented set of policies bought reactively tends to show its gaps.

The through-line is that each round changes both what you are exposed to and what counterparties contractually require of you. Insurance is one of the quieter items on a funding checklist, but a missing certificate or an inadequate limit can hold up a close.

What drives the cost of AI startup insurance

We will not quote you a number in an article — anyone who does is guessing. Premiums are shaped by your specific exposures, and for AI companies the key factors tend to be the nature of your model and how customers rely on its outputs, the volume and sensitivity of the data you hold, your annual revenue and customer profile, the limits of indemnity your contracts require, your claims history, and the maturity of your security and governance practices. Good documentation of your data provenance and controls does not just reduce risk — it helps an underwriter get comfortable, which tends to help the terms you are offered.

AI insurance is one of the most fast-moving corners of the market, and no honest broker will tell you it is fully settled. What we can do is read the current wordings against how your product genuinely behaves, flag where cover is silent or excluded, and line your policies up so a claim does not fall between them. If you would rather have that as a conversation than a form, speak to an Apex specialist — we work with venture-backed founders through every stage of scaling.

Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority (FRN 724952). This article is general information, not advice on a specific policy or a recommendation to buy any product.