AI is no longer the preserve of tech giants. In fact, small and medium-sized enterprises (SMEs) are among the most ambitious adopters, driven by the opportunity to make faster, smarter decisions, do more with less and, ultimately, level the playing field.
But beneath the surface opportunity, there’s a set of risk that’s often overlooked. Especially by businesses without the resources and expertise to fully vet the tools they’re using day-to-day. Risks aren’t always obvious. But they can quietly undermine security, operations, reputations and even compliance.
Here are four hidden risks that SMEs – and the brokers who support them – need to keep on their radar.
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The trap of over-reliance
AI can quickly become central to how an SME operates. Unlike larger firms with multiple systems, SMEs often lean heavily on a single tool or platform. If that tool fails – or worse, makes decisions based on flawed data – the consequences can be immediate and far-reaching. And without human oversight, those errors can compound over time.
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Fit-for-purpose failures
Many SMEs are buyers, not builders, of AI. That means they’re relying on third-party tools that may not be designed with their specific needs – or exposures – in mind. If the tool isn’t properly vetted or understood, it may not perform as expected, and even introduce new vulnerabilities into the business.
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Cybercrime and the lack of control
AI tools can create a false sense of security. Many SMEs assume that because they’re using a reputable platform, they’re protected. But cybercriminals are increasingly targeting smaller businesses, exploiting gaps in AI-driven systems – especially those with limited oversight or outdated security protocols. And what if the vendor itself is breached, causing a trickle-down effect that compromises users? From phishing attacks that mimic AI-generated emails to data breaches through an unpatched update, the risks are real and rising.
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The compliance catch-up
Large corporations have the luxury of in-house legal, compliance and tech teams to assess and manage AI risks. Many SMEs don’t. That means risk management often falls to generalists, if it happens at all. Without clear processes or technical expertise, SMEs may struggle to identify where AI is being used, let alone how it could go wrong. This lack of resource leaves them vulnerable to regulatory missteps, reputational damage and operational disruption.
Why this matters for brokers
Brokers have a critical role to play in helping SMEs navigate this new terrain. That means understanding not just the promise of AI, but the pitfalls too. By identifying hidden risks early, brokers can help clients make smarter decisions, and ensure they’re properly protected.
The insurance industry is moving at pace to meet this growing need. Affirmative cover is increasingly common in policies from technology to errors and omissions (E&O), while it’s vital to ensure there are no exclusions for AI-related exposures in your policy. At CFC, our teams have tracked AI since the turn of the millennium, monitoring innovations and claims trends to give businesses broader cover in this fast-changing landscape.
With the right insurance policy, SMEs not only gain a safety net if things go wrong but the confidence to invest and integrate AI tools – empowering them to take the opportunity that’s on the table.
Protect your SME clients from emerging AI risks. Contact our team today and sign up here to receive exclusive content and early access to expert analysis.
