Full Capacity: AI missteps open a Pandora’s box for insurers

August 29 2026 by

Welcome to Full Capacity, a weekly briefing on all the most important developments of the past week with a personal take on the news from our editor-in-chief, Mithun Varkey, delivered to your inbox every Saturday.    

Nat cat update. The deadly Himalayan flash floods in Nepal and China have now claimed more than 400 lives, with over 1,000 still missing. It is expected to drive substantial insured losses due to widespread damage to infrastructure, including 12 hydropower projects, as well as marine-transit losses from damage to more than 500 electric vehicles that were being exported from China to Nepal. 

IAN revealed that among the major reinsurers, Hannover Re is understood to have significant exposure to the event, as it leads the retro programs of Nepal’s two domestic reinsurers, Nepal Re and Himalayan Re. The Indian market is also likely to face heavy losses, with state-owned carriers GIC Re, Oriental Insurance and New India Assurance having a strong presence in Nepal. 

IAN exclusive. Markel’s financial lines underwriter Tina Cheung is set to depart the specialty carrier after three years in the role. 

Steady at the helm. Australian broker Steadfast has announced that it has paused its plans to find a successor for co-founder Robert Kelly following the recent takeover bid. Kelly had been scheduled to step down ahead of Steadfast’s FY26 results. 

Meanwhile, IAN revealed that the underwriting business of the group, which will be acquired by Amwins, will be led by former Steadfast COO and Kaibridge founder Nigel Fitzgerald. 

Zeroing in. Tokio Marine has identified Australian insurer Suncorp as its preferred takeover target after ‌reviewing several options including Australian insurer IAG and Canada’s Intact Financial, the Financial Times reported.  

IAN had reported last month on the rumours that the Japanese group was evaluating IAG and Suncorp. 

New licences. This week, India’s Gift City welcomed a new entrant as Qatar Islamic Insurance Group received regulatory approval to launch a branch, while in Vietnam, Asia Commercial Bank secured a licence from the Ministry of Finance to establish a non-life insurance subsidiary. 

Cargo disruption. Back-to-back storms in China have caused ripple effects at major ports, particularly Shanghai and Ningbo, exposing the cargo market to potential losses of up to US$5 billion.  

Meanwhile, the region is bracing for further turmoil as a rare quartet of storms – Narra, Saudel, Gaenari, and Atsani – swirl simultaneously across the northwest Pacific and South China Sea.   

The AI conundrum  

In a lawsuit involving US insurance giant State Farm, the insurer’s external lawyers were discovered to have cited “cases that do not exist, quotes that do not exist, and holdings that do not exist” in motions filed in the court.  

The law firm confirmed that there were seven case citations across eight filings “that simply didn’t exist”, as well as some incorrect titles of cases and quotes that were not found in cases, the lawyers cited.  

These lawyers weren’t ChatGPT-ing their way with the filings but were relying on a purpose-built legal AI platform called Irys. 

This brings the perils of relying on AI in stark contrast.  

An online database tracking AI-hallucinated court content now lists 1,980 cases worldwide, with a sharp uptick from late 2025. The US, Canada and Australia lead the tally. 

In a separate but equally alarming development, a self-represented litigant was caught embedding instructions in court filings using tiny white text on a white background.  

The invisible prompts told any AI reading the documents to agree with their position and produce favourable output. 

The judge spotted unusual blank spaces, sanctioned the litigant, and revoked their electronic filing access.  

These cases are not analogous, but they are both warning shots. 

Hallucinations are slipping through reviews at well-resourced law firms, while reliance on AI has massively expanded the attack surface for bad actors. 

AI insurance startup Testudo, in a note, said: “Any company using AI to process third-party documents has this attack surface. An attacker does not need system access. They only need to place instructions in a file the AI will process.” 

And then there is the Hugging Face hack. Recent revelations from the investigation into the incident, where OpenAI’s agents went rouge during testing and banded together by escaping human-set test limits to hack Hugging Face, the machine learning community platform, underscores the Pandora’s box that generative AI seems has opened. 

OpenAI, in a report on incident, said: “We consider this incident a ‘warning shot’ for us and for the world.” 

Taken together, these episodes should give pause to the industry – not just over the risks it faces from its own use of AI, but also from the growing exposure posed by its insureds. The risks are no longer abstract.  

Fake citations can end up in courts; hidden prompts can try to game outcomes and models left to their own devices can lead to dystopian aftermaths.  

People moves

In major appointments this week, Guy Carpenter has promoted Justin Ward to Pacific CEO and added former Partner Re CEO James Beedle to its Pacific board of directors. 

Chubb has named its former Malaysia head, Jon Longmore, as country president for New Zealand. 

Meanwhile, Allianz Ayudhaya in Thailand announced leadership changes: Lars Heibutzki will succeed Thomas Wilson, who is retiring, as Thailand country manager and CEO of the life and health business, while Sanghun Park will take over as CEO of the general insurance business. 

Do check out our weekly people move round-up to stay up to speed on the most important appointments in the region. 

MORE FROM: Round ups
Partner Content
Join the mailing list Designed to help you stay ahead, our daily newsletter provides a round-up of the latest news and insights, delivered straight to your inbox.
Print Edition
Subscribe to receive our quarterly print magazine.