From AI misuse to sector-specific regulatory changes, this edition of Relm’s Risk Wrap explores four risks reshaping liability, compliance expectations, and policy coverage.
More AI Misuse in Court Rulings? A Wake-Up Call for All Industries
Two US district judges (Mississippi and New Jersey) withdrew rulings after discovering AI-generated research introduced “factual inaccuracies and other serious errors.” The decisions included details that didn’t match court records. In the Mississippi case, plaintiffs and defendants were misidentified while in New Jersey, non-existent quotes from other rulings were included.
It’s not confirmed whether the errors were caused by AI. But it was reported that someone familiar with the NJ case said that research produced using AI was “included in a draft decision that was inadvertently placed on the public docket before a review process.” A temporary assistant had prepared the research.
If AI was responsible, these incidents join a growing number similar cases. This is a clear signal of broader liability risks tied to the use of generative AI in high-stakes environments, be it law, medicine or finance. The consequences can be severe: misdiagnoses, discriminatory outcomes, flawed credit decisions, reputational damage, regulatory breaches, and more.
Implications for brokers and clients
- The lines between human and AI-generated work continue to blur and disputes over coverage applicability may increase.
- In future, new risk assessment models may need to factor in how AI is integrated into core business operations.
- Documentation standards for AI development and deployment may become central to insurability, not just regulatory compliance.
Source: Reuters. (July 29, 2025). Two U.S. judges withdraw rulings after attorneys question accuracy.
The US GENIUS Act: Greater Certainty and Compliance Demands for Stablecoin Issuers
According to the WEF, the use of stablecoins has increased by 28% since this time last year, yet less than 10 major economies have passed stablecoin-specific legislation. The US recently joined that minority, passing the US Genius Act.
The reduced regulatory uncertainty around this segment of the digital asset space may attract more participants. But of course, it also raises the bar for compliance and increases potential regulatory exposure for those already active in the market.
The Act includes three main provisions:
- Stablecoin issuers are limited to insured depository institutions that receive approval from the Federal Reserve.
- Issuers must hold 1:1 reserves for any stablecoins issued (in physical currency, US treasury bills, repurchase agreements and other approved low-risk assets).
- All issuers have to comply with the Bank Secrecy Act and implement AML and CFT measures.
Implications for brokers and clients
- The Act raises the bar for risk management standards required to obtain or maintain coverage.
- Compliance burdens will increase significantly with issuers now subject to bank-level obligations.
- Foreign companies issuing stablecoin into the US market will be subject to the same requirements.
Source: World Economic Forum. (July 29, 2025). How will the GENIUS Act work in the US and impact the world?
Hemp THC Ban Dropped From Agriculture Appropriations Bill
The removal of the hemp THC ban from the US Senate’s agriculture appropriations bill preserves the legal status of psychoactive hemp-derived products like delta-8 THC. This may come as a temporary relief to hemp producers, but the ongoing legislative tension signals continued regulatory uncertainty for the industry.
The ambiguity around what constitutes a legal hemp product may create exposure for producers, retailers, supply chain operators, and any financial service providers involved. Insureds may face sudden restrictions that render inventory unsellable or business models unviable.
The hemp THC ban was removed from the Senate version of the bill, but the House version retains similar language. The disparity will have to be resolved before the bill is passed.
Implications for brokers and clients:
- Regulatory uncertainty remains a major risk and companies must keep a close eye on developments in case of sudden changes.
- Regulatory changes could affect insurability or trigger exclusions in existing policies.
- Insurance and risk management approaches may have to adapt quickly depending on the bill’s final language.
Source: Forbes. (July 30, 2025). Senate panel drops hemp THC ban from agriculture spending bill.
EBA Warns of Growing ML and TF Risks
The European Banking Authority recently published its 2025 Opinion on the money laundering and terrorist financing risks affecting the EU’s financial sector. New vulnerabilities are emerging due to increased digitization and regulatory changes.
In fintech, companies are prioritizing growth over compliance which is leading to poor AML and CFT controls. (70% of competent authorities have reported high or growing risk in the financial sector.) The improper use of RegTech is responsible for more than 50% of serious compliance failures reported to the EBA’s EuReCA database, and AI is being increasingly used to automate money laundering schemes.
Implications for brokers and clients:
- Transparent AML / CFT practices are vital for maintaining insurability and managing liability exposure.
- Firms using RegTech must ensure that the deployment of these tools is done correctly by experienced personnel.
- Companies must implement robust monitoring of AI usage and continually enhance AML / CFT frameworks to prevent criminal exploitation.
Source: European Banking Authority. (July 28, 2025). Careless use of innovative compliance products can lead to money laundering and terrorism financing risks.
Underwriters Recalibrate For Next-Gen Space Risks
The growing integration of artificial intelligence and software-defined satellites increases the risks of cybersecurity breaches, firmware failures, and AI-related errors. Traditional insurance policies, which typically cover clearly defined assets, face new liability challenges due to the involvement of astronauts and human spaceflight. The rising frequency of commercial launches, combined with a variety of satellite types, presents significant challenges for accurate risk modelling.
Implications for brokers and clients:
- Brokers must adapt to more frequent, lower-value satellite missions and new risks like cybersecurity and AI errors.
- Underwriters focus on long-term, knowledge-led approaches, requiring expert broker guidance.
- Informed, adaptable brokers can better navigate and advise in the evolving space insurance market.
Source: Insurance Business. (July 30, 2025). Space insurance enters a new era of disciplined opportunity.
Broker Quote Automation Boosts Efficiency, Raises E&O & Cyber Risk Flags
Automated bots enable broker quotes to be turned around in eight minutes, cutting manual work but raising the risk of errors and omissions. Heavy reliance on automated tools risks systemic errors that may compromise data integrity and result in incorrect quote issuance. A platform outage or integration failure could simultaneously disrupt hundreds of brokerages. Misuse or breaches of personal data via automated quoting tools could lead to privacy liabilities and regulatory penalties.
Implications for brokers and clients:
- Acquisition of Insurebot automates quoting, boosting broker efficiency.
- Integration with the INSIGHT platform reduces manual tasks and streamlines administration.
- Clients receive faster quotes, allowing brokers more time for personalized advice.
- The move supports Steadfast’s long-term digital strategy for consistent service.
- Insurebot’s founders take leadership roles to drive ongoing innovation.
Source: Insurance Business. (July 30, 2025). Steadfast snaps up tech start-up to speed up broker quotes.
