Randy Sadler, principal at CIC Services, discusses why captive professionals should be more strongly considering the growing sophistication of AI-driven disinformation
Disinformation and misinformation have long been associated with political campaigns and public discourse. However, the growing sophistication of AI-driven disinformation poses a significant and evolving threat to businesses as well. This risk extends beyond reputational damage and financial loss—it now includes complex legal implications, making it a crucial consideration for captive insurance professionals.
AI-Driven Disinformation: A Growing Threat
Since May 2024, AI-driven false articles have increased by more than 1,000% according to NewsGuard, an organization that tracks misinformation. AI-driven disinformation, particularly through deepfakes and synthetic media, has also grown exponentially. Deepfakes, which use AI to create realistic yet fabricated images, videos and audio, can be used to deceive stakeholders, manipulate stock prices, and tarnish corporate reputations.
The risks are not just theoretical. A Forbes article cites one of the first known cases of AI-generated voice deepfakes being used in a scam. The CEO of a UK-based energy firm was tricked into transferring €220,000 (approximately $243,000) to a fraudulent account. The CEO believed he was speaking with his boss, the chief executive of the company’s German parent firm, but it was actually a fraudster using AI technology to mimic the executive’s voice. The scam was discovered after a second payment request raised suspicions, but by then, the money had already been dispersed to international accounts. This incident underscores the growing threat of AI deepfakes in business, highlighting how this technology can be exploited for financial fraud.
The Financial Impact of Disinformation
The financial implications of AI-driven disinformation are profound and far-reaching. A report by the cybersecurity firm CHEQ estimated that fake news costs the global economy $78 billion annually. For businesses, the financial fallout can include direct financial losses from scams, disruptions to operations and increased expenditures on security measures to prevent future attacks.
The following key threats drive financial fallout and are critical to consider when assessing a business’s risk landscape:
1. Reputational Damage
Reputational damage is perhaps the most insidious and enduring risk associated with AI-driven disinformation. Unlike financial losses, which can be quantified and addressed through compensation or insurance, damage to a company’s reputation can have long-lasting effects that are difficult to rectify. A study by MIT found that false information is 70% more likely to be shared on social media than true information, highlighting how quickly disinformation can spread and gain traction online.
Once a disinformation campaign takes hold, it can create a ripple effect, eroding trust among customers, investors, and business partners. The speed at which AI-generated deepfakes or fabricated news articles can go viral means that a company’s image can be tarnished almost instantaneously, and the effects can linger long after the original disinformation has been debunked. Negative perceptions can become ingrained in the minds of stakeholders, leading to a loss of business, decreased market value, and even the departure of key employees.
The nature of AI-driven disinformation makes it particularly difficult to combat. Traditional public relations efforts may be insufficient to counter the sophisticated and highly targeted tactics used by bad actors. Companies may find themselves constantly on the defensive, trying to disprove false claims while simultaneously dealing with the fallout from those claims. In some cases, the damage may be so severe that it requires a complete rebranding or a change in leadership to restore confidence.
2. Litigation Risk
The legal implications of AI-driven disinformation are profound and multifaceted. Companies that fall victim to such disinformation may find themselves embroiled in costly and protracted litigation. Disinformation can lead to lawsuits for defamation, libel or slander, particularly if false information about a company or its executives is widely disseminated. These legal battles are not only expensive in terms of legal fees but can also drain resources and distract from core business operations.
Also, disinformation that causes financial harm, such as manipulating stock prices or disrupting business operations, can lead to shareholder lawsuits. Shareholders may seek to recover losses by suing the company for failing to prevent the spread of false information. These lawsuits can be lengthy and complex, often requiring companies to prove that they took reasonable steps to protect against disinformation—a challenging task in an evolving legal landscape.
3. Regulatory Scrutiny
The regulatory environment surrounding AI-driven disinformation is still taking shape, but the potential for scrutiny is significant. Regulatory bodies, such as the U.S. Securities and Exchange Commission (SEC), have already begun to address the risks posed by disinformation, particularly in the context of market manipulation. In 2022, the SEC issued a warning about the use of social media to spread false information that could affect stock prices and investment decisions.
Companies targeted by disinformation campaigns may face investigations from regulators, especially if the disinformation leads to significant market disruptions or violates securities laws. These investigations can result in hefty fines, penalties and even criminal charges against the company or its executives. The regulatory response to AI-driven disinformation is likely to become more stringent as the technology becomes more widespread, making it essential for companies to stay ahead of these developments.
Captive Insurance: A Strategic Response
Given the complex and evolving nature of AI-driven disinformation, captive insurance offers a strategic response. Captive insurers have the flexibility to design policies that address the specific risks faced by their insureds, including those related to disinformation. This poses an opportunity for businesses since traditional insurance policies may not cover the full scope of reputational damage or litigation fees caused by disinformation.
For example, captives can adapt their policies to address potential liabilities stemming from AI-driven disinformation. This could include offering coverage for legal defense costs, regulatory fines and penalties associated with disinformation-related claims. By customizing coverage to include risks associated with AI-driven disinformation, captives can provide more comprehensive protection for their insureds.
Moreover, captives can play a proactive role in risk management by helping their insureds develop strategies to mitigate the impact of disinformation. This could involve partnering with cybersecurity firms to monitor for signs of disinformation, investing in AI tools that detect deepfakes and providing training on how to respond to disinformation campaigns.
Conclusion: The Future of Captive Insurance in the Age of AI
As AI-driven disinformation continues to evolve, so too must the strategies employed by captive insurance professionals. The ability to customise coverage, manage complex risks, and offer proactive risk management solutions makes captives an ideal vehicle for addressing the threats posed by disinformation. By staying ahead of these risks, captive insurance professionals can help their clients navigate the challenges of the digital age and protect their businesses from the potentially devastating impact of AI-driven disinformation.
About the Author:
Randy Sadler started his career in risk management as an officer in the U.S. Army, where he was responsible for the training and safety of hundreds of soldiers and over 150 wheeled and tracked vehicles. He graduated from the U.S. Military Academy at West Point with a B.S. degree in International and Strategic History with a focus on U.S.–China relations in the 20th century. He has been a principal with CIC Services, LLC for seven years. In this role, he consults directly with business owners, CEOs, and CFOs on the formation of captive insurance programs for their businesses. CIC Services manages more than 100 captives.
