5 risks and liabilities of using AI for business
5 risks and liabilities of using AI for business
“Thank God for AI,” says Stephanie Munson, owner of the digital marketing company Moxie Creative Solutions. “It has sped up so many tasks for me, especially as a small business owner. It has been a gamechanger, from note taking during Zoom meetings to helping clarify my messaging, serving as a sounding board for ideas, and helping me be the best I can be for my business,” she says.
Jessica Rich, owner of women’s wellness e-commerce company Bona Dea Naturals, agrees. She uses a combination of free and paid AI tools almost daily. “Because I am personally responsible for so many varied tasks, AI has helped me not only save a huge amount of time, but also improved the quality of my work.”
But AI for your business does pose risk. AI tools are designed to be more of a text predictor than a thinker. You can prompt it to create output, and it will deliver what it thinks you want — but the output will not necessarily be true or accurate.
Artificial intelligence tools like ChatGPT, Gemini, and Claude can help small businesses automate tasks and scale more efficiently. Nearly 30% of small business owners use AI, according to a NEXT Insurance April 2025 report.
Using AI successfully in business means careful planning and implementation. And without smart guardrails in place, you could open yourself up to significant business risk.
Business operators are increasingly turning to AI tools for tasks such as:
- Optimizing business operations
- Sales and marketing
- Customer service
- Inventory planning and fulfillment
- Accounting and bookkeeping
- Product development
- Logistics and shipping
But depending on AI for business decisions can be risky. It could leave your business vulnerable to:
- Data breaches of sensitive information
- Bad advice on legal, financial or business matters
- Incorrect summaries of lengthy documents
- Inaccurate written documents, such as reports, emails, job postings or business plans
- Poorly structured product prototypes
- Shotty language translations
Make sure to protect your small business investment with careful deployment, human oversight and the right business insurance for your business’ specific needs.
For small business owners, who may not have the margins or reserves of a larger enterprise, the risks can be even more critical. If you decide to move forward with AI for your business, be sure to keep a sharp eye on these weak links.
1. AI can leave you susceptible to data leaks
According to Security.org, feeding AI sensitive business data or personal information — such as tax information, payroll, invoices or financial data — leaves you open to the risk that your private information could be leaked, either to criminals, competitors or a curious public.
Even if you don’t feed sensitive information to an AI application, it could still gather information about where you’re located, your prompts and outputs, or the device you’re using. Your chats could become public or even searchable. Don’t share any business information with an AI tool that you wouldn’t put out on the internet at large.
Cyber insurance could help small businesses assess and quickly respond to many technology-based threats, including data breaches, wire fraud and social engineering that stem from personal email, vendors, partners and employees.
2. You could be held legally liable for bad AI
AI models train on your existing content and retain a memory of your previous queries. Therefore, AI tools might give you biased information.
If AI leads to errors in important areas like human resources or legal compliance, you could risk becoming the target of a lawsuit.
You might receive answers to your queries that contain harmful stereotypes. That could cause serious problems for you or your customers when using AI for decision-making, including hiring decisions.
One way to protect your business is with small business insurance. Specifically, employment practice liability insurance (EPLI insurance), an add-on to general liability insurance coverage, could help protect your business from some business discrimination claims. This type of protection could help cover costs if your business faces a lawsuit over your employment practices, including accusations of failure to hire or promote.
It could also be a legal risk to use AI-generated materials that could be considered a copyright or intellectual property infringement, especially if you publish them in ads or post them online.
3. Beware of hallucinations and misinformation
There’s no guarantee that AI tools will give you accurate information. These are called AI hallucinations, and they can lead you to make misguided or even unwise decisions for your business or your clients.
Oversight by a real person is your first line of defense against AI hallucinations. Don’t deploy AI output without human review. Instead, make sure you or a team member vets the output, including fact-checking and monitoring results.
Professional liability insurance, also called errors and omissions insurance or E&O insurance in some professions, could help protect you financially if you’re accused of making a professional mistake that costs a client money. It’s sometimes required for advice-based professionals such as consultants, financial advisors or real estate agents.
4. Don’t rely on overautomating
Depending on artificial intelligence over human intelligence can make it tempting to cut headcount. But shrinking your staff too much could reduce critical human oversight (and may damage employee morale and productivity in the process).
If your AI tools go down, can you keep your business running efficiently? AI can speed up some business operations, but relying on it can leave you vulnerable to disrupted business operations if there’s a service outage.
5. Look out for unexpected costs
Though there are plenty of free AI tools, you may find that your tech costs begin to mount fast. In addition to pro-tier or business subscriptions for the software you need, you may also find you need more cloud storage, new hardware or training to get the most out of your AI. These operational costs can eat into your margins and reduce profitability.
If your hardware is stolen from your workplace or damaged, you may be able to file a claim to recoup your losses. Commercial property insurance could help cover the computers, phones, and other hardware or business property you use to access AI in your shop, office or on the go.
This story was produced by NEXT and reviewed and distributed by Stacker.
