AAIS hosted the webinar AI Exploitations: How P&C Insurers Can Protect Themselves, featuring insights from Joseph Petrelli, President of Demotech, and Todd Kozikowski, CEO of 4WARN, with Werner Kruck, President and CEO of AAIS, moderating. The session explored operational, legal, and reputational implications of AI-driven threats, giving insurers practical guidance to identify exposure, implement safeguards, and stay ahead of evolving fraud techniques.

Lessons From Insurance Market and Carrier Failures

Petrelli opened the conversation by examining recent trends in claims and litigation, pointing to Florida’s wave of insurer insolvencies in 2020. Several carriers collapsed despite strong financial ratings, adequate reinsurance protections, capital contributions, and unqualified audits. “The safeguards were in place, but the issue was claims, not solvency,” Petrelli explained.

He pointed out that litigation surged to unsustainable levels, overwhelming even well-managed insurers. New technologies accelerated solicitation and claim manipulation, allowing opportunistic actors to reach policyholders faster and at greater scale. What might once have been a localized or manageable challenge quickly cascaded into systemic risk for the market.

Petrelli emphasized that this historical perspective carries an urgent lesson: vulnerabilities in operations and claims handling can undermine carriers regardless of their balance sheet strength. As AI becomes more prevalent, he cautioned, insurers face similar dynamics—only now the risks are amplified by the speed, automation, and reach of digital manipulation.

The Evolution of Fraud with Digital Risk

Digital fraud in insurance has shifted from opportunistic scams to highly organized, scalable operations. Kozikowski explained that one of the most concerning developments is Ghost GPT—malicious, customized AI models sold on the dark web. These tools have effectively created a “fraud-as-a-service” market, enabling even non-technical actors to launch sophisticated attacks.

He noted that by flooding the internet with manipulated content, bad actors can influence multiple AI platforms simultaneously, producing consistent but false responses that shape consumer perception and behavior. “These tools are lowering the barrier to entry for fraud,” Kozikowski emphasized. “Insurers need to understand the external attack surface just as well as their internal systems.” As fraud becomes more organized, AI itself has emerged as a new attack surface for these coordinated campaigns.

AI as a New Attack Surface

AI has introduced entirely new vectors for exploitation. Fraudsters are no longer limited to internal systems—they can manipulate public data, SEO strategies, and digital channels to amplify attacks. From generating fake content to influencing search engine results, AI-enabled threats are faster, more sophisticated, and increasingly difficult to detect.

Kozikowski explained that coordinated fraud campaigns are rarely confined to a single tactic; instead, they operate as layered operations designed to overwhelm insurers from multiple angles at once. He pointed to black hat SEO campaigns as a growing threat, where fraud actors flood search engines with fake websites and keyword-optimized content that impersonate legitimate insurers or legal resources.

At the same time, Kozikowski said, these groups deploy AI-generated articles, reviews, and social posts to reinforce the false narrative, ensuring that consumers and even automated systems encounter consistent—but misleading—information across platforms.

He also noted the rise of coordinated litigation solicitation efforts, where fraud networks use AI-driven digital ads, text campaigns, and robocalls to push policyholders toward opportunistic lawsuits. By automating outreach and scaling rapidly, these campaigns can generate litigation volumes that overwhelm carriers, regardless of their financial strength.

“What we’re seeing is a lifecycle of propagation,” Kozikowski said, “where fraudsters create content, amplify it through multiple channels, and then reinforce it with claims or legal action. The digital ecosystem gives them a playbook to move faster than insurers can respond if we’re not paying attention.” Understanding these external and internal vulnerabilities is critical, and 4WARN has developed strategies to help insurers respond proactively.

Mitigation Strategies and Industry Collaboration

4WARN was founded to help insurers understand and defend against emerging digital threats, focusing on how fraud campaigns spread and take root across the internet. By tracking the propagation lifecycle of fraudulent content and analyzing claims and litigation patterns, 4WARN enables insurers to anticipate and address risks before they escalate. “Our goal is to see the threats early, understand how they’re evolving, and work with the industry to stop them before they cause real damage,” Kozikowski said. Through continuous monitoring, trend analysis, and close collaboration with industry partners, insurers can proactively strengthen their defenses rather than simply reacting after the fact.

Kozikowski also stressed the importance of education and awareness, equipping internal teams to recognize early signs of AI-driven manipulation—such as brand impersonation or black hat SEO tactics, where fraud actors deliberately game search engine algorithms to elevate misleading or malicious content. He pointed to the growing role of third-party litigation funding networks, which can magnify the reach and financial impact of AI-enabled fraud. According to Kozikowski, this evolving threat landscape underscores the need for insurers to adopt proactive, layered defenses and integrate AI risk monitoring into their core risk management frameworks.

Staying Ahead of AI-Driven Fraud

As AI technology continues to advance, so too will the methods of bad actors. Insurers are encouraged to build robust internal governance structures, invest in advanced monitoring tools, and foster industry collaboration. “Understanding the AI attack surface—inside and outside the organization—is essential to protecting operational integrity, compliance, and consumer trust,” Kozikowski concluded. By taking a proactive approach, insurers can safeguard their operations and maintain confidence in an increasingly complex digital environment.

To view the full webinar, click on the video above.

Questions? Please reach out to any of the featured speakers through the contact information below.

Werner Kruck
President & CEO, AAIS
wernerk@aaisonline.com

Joseph Petrelli
President, Demotech
jpetrelli@demotech.com

Todd Kozikowski
CEO, 4WARN
todd@4warn.com

The post Webinar: AI Exploitations: How P&C Insurers Can Protect Themselves first appeared on AAIS.

Following the success of this model, several fire departments across North America began to develop similar mitigation strategies that were focused, coordinated, and ultimately effective in reducing fire and other emergency incidents in their communities. Surrey Fire Service in British Columbia, Canada used similar principles to reduce fire incidents by 80% in a 12-year period[iii], and Kankakee Fire Department in Illinois reduced fires in their focus area by 40% over several years[iv]. So, it raises the question, why doesn’t every local fire department embrace CRR if it promises such significant potential reductions in losses?

Have We Created a Moral Hazard by Incentivizing the Wrong Things?

A large part of the answer to that question rests in the fact that most of what we measure, and thus incentivize fire departments to focus on, tends to be response oriented. What has been missing from this equation for far too long is any meaningful evaluation of how good of a job our communities and the fire departments that protect them are doing in terms of reducing risk, not just responding to it. Frankly, it is far easier for fire departments to largely ignore proactive risk mitigation strategies and take a more reactive suppression-focused approach. Doing “the right thing” in terms of executing effective CRR programs takes time, effort, passion, and money.

There is little if any incentive for fire departments to take this CRR paradigm shift seriously. To put it in more stark terms, we have created a Moral Hazard where we inadvertently reward all of the wrong things, and thus we should not be surprised that CRR efforts are given short shrift. So, to answer the question of “Why don’t more fire departments embrace CRR?”, it is because the way we grade and evaluate fire departments doesn’t meaningfully evaluate CRR. For CRR to become more than just the “right thing to do,” we need to put CRR front and center in how we evaluate public fire protection…and that’s exactly what AAIS is doing.

AAIS’s Role: FLAMES

Each community is different, faces different risks, and needs different interventions. Yet, it is challenging to develop a standardized and consistent way to objectively measure how well a community is doing in terms of understanding its various risks, developing meaningful strategies to reduce those risks, and measuring the effectiveness of their efforts, at scale. AAIS has developed a novel approach to rating modern public fire protection called FLAMES (Fire Loss and Mitigation Evaluation Score). FLAMES challenges the legacy assumptions that limit modern insurers’ ability to accurately select and price risk by turning the focus from counting response equipment to evaluating mitigation effectiveness.

Building upon this existing filed approach, AAIS is expanding and enhancing its fire loss model countrywide to give insurers a more granular and accurate understanding of fire losses. AAIS is also developing an innovative methodology for evaluating local mitigation efforts where they are the most effective: at the local level. This approach will provide insurers and communities with important insights about the effectiveness of local mitigation programs and services in a market constantly disrupted by ever-increasing losses.

To learn more about what’s to come with the FLAMES initiative, visit AAISonline.com or contact an AAIS Engagement Manager.

[i] British fire services classify fires as either primary fires, the most severe, or secondary fires, which pose less immediate risk to life or property. They also break out dwellings fires out of the wider statistics about primary fires. These statistics were compiled from data publicized by the British Home Office.

[ii] NFPA annually compiles national fire loss estimates.

[iii] The Surrey Fire Service – HomeSafe program has been evaluated to determine the efficacy of the program.

[iv] The American Red Cross conducted an evaluation of its smoke alarm installation program partnership with the Kankakee Fire Department.

The post Community Risk Reduction: A Paradigm Changing Public Fire Protection first appeared on AAIS.

While much of the talk about batteries and fires in the popular press circles around electric vehicles (EVs), the focus of this workshop and the crux of the battery fire problem in New York City (NYC) is focused on micro-mobility devices: eBikes, eScooters, eMotorcycles, and to a lesser extent, hoverboards and novelty mobility devices. Micro-mobility devices are a particularly urban phenomenon that is especially well suited for dense urban, post-pandemic communities. These battery-powered devices need regular battery swaps or charges wherever they can get access to electricity– be it the back of delivery hubs, e-bike stores, restaurants, retail shops, apartments, and most worryingly, egress hallways. When these devices fail—and fail catastrophically— the rapid heat release rate has been shown over and over to lead to extreme fire behavior often blocking egress pathways, and with occasionally fatal results.

A recent fire in NYC highlighted key themes that emerged throughout the workshop. In June 2023, an e-bike retail store in the Lower East Side of Manhattan had a significant fire from a battery that likely was being charged killed four residents in the apartments above the shop. In the 10 or so days after the original incident, there were numerous reignitions including a second major incident that nearly took the life of a police officer. This incident only got worse when the ill-equipped hazardous materials remediation contractor ended up having several additional fires first in a containment barrel in front of the fire building, then in a semi-truck in the middle of the Long Island Expressway, and later in a storage yard. While you’d be forgiven for assuming this was the plot of a Hollywood dramatic comedy, this sequence of events highlights the potential for compounding problems when these batteries are poorly understood and poorly handled. It brought to light three themes:

1. The first fire may lead to more. Firefighters pride themselves on making sure a fire is truly extinguished before they leave. The “overhaul”’ practice, where they seem to destructively remove drywall and pull-down ceilings, is intended to ensure that there are no hidden pockets of fire that might rekindle hours later. However, battery fires, for all intents and purposes, may be extinguished, and then due to stranded energy or a compromised container, the battery may reignite hours, days, or even weeks later. Even batteries that were not directly involved in the fire may have sustained thermal, water, or physical damage during the fire incident and may ignite later.

2. Developing strategies and ordinances for safe charging is the most important mitigation. While FDNY personnel shared information about various devices that caught fire or exploded during normal use, the majority of incidents involved batteries being recharged. Fires during recharging have occurred in single-family dwellings, multi-family apartment complexes, and a multitude of different types of commercial occupancies—often where dozens of batteries are being recharged simultaneously in storefronts or food delivery hubs. The FDNY mentioned the recent legislation in NYC that significantly regulates battery charging in commercial occupancies.

3. Black market and grey market replacement and refurbished batteries present the gravest danger. Many of the presentations at the symposium revolved around replacement batteries and battery-powered devices sourced from overseas. Even more worrisome are DIY refurbishments where less-than-scrupulous vendors procure dead batteries, take the individual cells out of batteries, and reuse, repackage, and resell them to unsuspecting consumers. FDNY and UL personnel also shared that a growing number of battery chargers and other devices they confiscated bore counterfeit UL Listing trademarks, which are being sold in local and online retailers.

The speakers also shared a number of success stories and emerging best practices that communities across the country can and should begin to adopt now to mitigate the potential for future losses and future crises.

• Improving laws and ordinances. Some communities are beginning to adopt legislation and regulations to address the various risks associated with these types of incidents. Those same communities—NYC being an archetype—are also doing the associated compliance inspections and code enforcement activities to ensure these new regulations are being complied with. However, given the patchwork legal fabric of our country, regulatory advancements in NYC, for example, do not necessarily improve the situation in other major cities, much less small towns. That said, other cities can and do borrow and adapt model legislation from other communities to expedite their own development.
• Improving products to mitigate, suppress, and/or contain fires. Part of the problem is how quickly new battery-powered devices and threats are emerging in the marketplace. Thankfully, we’re now also starting to see rapid growth in the products and technology to address and prevent these types of fires. There were two types of products discussed at the workshop that stood out. CellBlock is a novel type of hazardous materials inert media that can be used to safely pack damaged batteries for storage. CellBlock also makes a range of pouches infused with the CellBlock chemicals that are used on airplanes and other enclosed environments to contain mobile devices that are failing. The other product was non-combustible battery charging cabinets that are designed to contain and limit the chain reaction of failures if a battery begins to fail while charging. It is worth noting that these differ significantly from “flammable cabinets” that are required for storing flammable liquids. The FDNY noted that several of these cabinets have been given a “Letter of Non-Objection” by the City of New York, which is their de facto stamp of approval.
• Emerging best practices in how to mitigate, extinguish, and remediate battery fires. The threat posed by battery fires has so far outpaced our ability to address them. In the absence of mature, science-based, universally adopted practices, first responders and remediation practitioners are relying upon their legacy practices and procedures, word-of-mouth conjecture, and a fair bit of ad-hoc experimentation to figure out how to address these atypical incidents. As a result, sometimes these practices end up prolonging or making the incident worse. This should be a concern for insurers. Current practices call for spraying high volumes of water for potentially hours to “drown” a fire—most often seen with electric vehicle fires—yet doing so often exacerbates the environmental contamination that may need to be remediated. Firefighting gear that is exposed to these types of fires may be permanently contaminated and require replacement, which may expand the cost of claims. However, progress is being made with workshops such as this one and groups like the non-governmental private company, Energy Security Agency, which provides training to first responders and towing professionals, destructive testing of battery-powered devices to learn from how different batteries fail, and a free 24/7 emergency advice line that first responders can call for guidance.

While there may not be a whole lot of mature science about how to mitigate these risks, the industry is rapidly trying to fill in the knowledge gaps and increase awareness to reduce the impact of these incidents. Hopefully, we will see this increased knowledge also reduce the financial loss associated with these types of claims. This is very much a topic that insurers should keep on their radar—even if they have not yet had a loss—because the prevalence of these types of devices is growing every day. AAIS is keeping our thumb on this emerging peril. Reach out to Dr. Matt Hinds-Aldrich to learn more.

The post Redefining Mobility & Risks of Battery Fires: Findings from an FDNY Symposium first appeared on AAIS.

“I’ve been getting out of the house more than ever with this new e-bike, have you considered getting one?”  

“Now that my solar array is complete, and I’ve connected the new 3000-watt home battery backup, I’m ready to go off-grid.”

The adage “home is where the heart is” speaks to our homes’ role in our lives. They are not simply our biggest investment, they are not simply an assembly of materials arranged in a shelter; a home is where our lives happen, where the people we care for coalesce. Increasingly, our homes are also where we store, charge, and use the multitude of battery-powered devices that we rely on for our work, our chores, and our leisure. A decade ago, the battery industry estimated that a typical household of two would have 20-40 (traditional removable) battery-powered devices. With the vast expansion and enhancements in battery technology, this number has grown exponentially. Nearly every household device now has a mass-market battery-powered version, and the remaining devices can typically be powered through large solar arrays and residential-scale energy storage systems.

With the rapid proliferation of battery-powered devices in homes (and businesses), we are hearing more frequently about the fire risks associated with these devices. Fires in modern battery-powered devices tend to be quite spectacular and cause considerable damage. The primary reason for this extreme fire behavior is Thermal Runaway – “a phenomenon in which the lithium-ion cell enters an uncontrollable, self-heating state. Thermal runaway can result in extremely high temperatures, violent cell venting, smoke, and fire.” (Source: UL Electrochemical Safety Research Institute). When confined inside a house, the thermal runaway from a small device can quickly transition to a fully involved structure fire. For NBC’s Today Show, UL conducted a full-scale demonstration of an e-scooter fire due to overcharging in a living room, dramatically demonstrating how quickly it can destroy a house.

Insurers have been working to understand this growing exposure. What the industry is learning is this exposure is not a narrow issue confined to one type of device or failure mechanism. The problem is multifaceted and complex, and this type of exposure is present in most homes (and businesses). But there are some common considerations and factors that increase the risk:

• Physical Damage or Destruction of the Battery – Many battery-powered devices are intended for hard work and rough play and consequently may crash, be stepped on, dropped from a height, pierced, submerged in water, or otherwise abused. Doing so can damage the battery components and disable safety features leading to overheating, short-circuits, and worse yet, thermal runaway.
• Resold or Refurbished Battery Components – The concern here is about used battery packs being resold from consumer to consumer when the provenance of the battery (and any potential damage, misuse, submersions, etc.) is unknown. This is even more problematic when advanced DIYers or unlicensed persons may have attempted to refurbish or modify battery components themselves. While there is a mature industry that tests, refurbishes, and resells used consumer electronic devices, the battery components themselves are best purchased new from a reputable source.
• Long-term and Unmonitored Recharging – Perhaps the most significant feature of any battery system is the ability to stop charging when it reaches its capacity. This technology has become so successful that we often put our devices on the charger and leave them there, figuring the device(s) are smart enough to shut themselves off when it is complete. This habit can result in fires when devices or battery packs are left on the charger for hours or days after they have fully recharged.
• Recharging Devices in Means of Egress – Very often the question about battery safety is more of a question of location—where is the battery being recharged? Many of the fatal fires associated with batteries have occurred when occupants—particularly in multi-story apartment buildings—have left micro-mobility devices (e-bikes, hoverboards, etc.) charging in hallways, stairwells, and doorways. If the device catches on fire it can block the primary means of escape for the residents, trapping them in the building or in their apartment.
• Batteries Inappropriately Disposed of in the Waste Stream – While typically less of a concern for traditional P&C carriers, another major fire source are batteries carelessly disposed of in residential trash waste streams. When compacted in refuse trucks or dumped into waste transfer stations, the residual “stranded energy” still contained within the batteries can start fires.

Communities across the country are working to reduce the prevalence of fires from battery-powered devices. New York City, which has seen a significant number of battery fires, instituted a series of regulations to reduce fires by prohibiting the sale of batteries that are not UL-approved and severely restricting locations where batteries can be refurbished or stored in large quantities (such as bike courier hubs), among other things. Other communities are following suit in passing regulations, increasing public awareness of battery fire safety, and developing effective strategies for suppressing and containing battery-caused fires.

But the challenge remains that many unapproved and unregulated devices are readily available for sale through online marketplaces, making it easy to sidestep local enforcement efforts. More places are providing safe battery disposal sites including big box stores and waste and recycling vendors (for the purpose of reducing the fire risk to their vehicles and facilities as much as for environmental stewardship), though many of these disposal sites explicitly prohibit disposing of batteries that have expanded, deformed, or are otherwise at risk of imminent catastrophic failure.

As the battery technology industry becomes more mature and more heavily regulated, we can expect to see more intrinsic safety measures built in and better ways to prevent the catastrophic failure of batteries. However, as the industry matures, it is also expanding exponentially with countless new technologies being introduced and novel energy storage devices being prototyped every month. So, the exposure is only anticipated to grow accordingly. Insurers need to have a seat at the table when the dinner conversation turns to fire risks from batteries. Because a modern home really is where the battery is.

The post Home Is Where the Battery Is first appeared on AAIS.

Overview of the Regulation

In October 2022, the California DOI passed the regulation requiring an insurer to offer specific mitigation factors. Westcott explained that the determination for whether this applied to consumers’ currently filed rate was whether they used the wildfire risk model, or the rating plan segmented a policyholder’s rate based upon the policyholder’s wildfire risk. “The regulation addresses two types of mandatory mitigation factors as well as the community level and property level mandatory mitigation factors,” Westcott described. “The property level factors cover mitigation measures addressing both the immediate surroundings at the structure, often referred to as ‘defensible space,’ as well as the buildings hardening measures performed on the structure itself.” The regulation further identifies some optional factors relating to wildfire loss that an insurer may incorporate into the rating plans as long as the resulting rate is not excessive, inadequate, or unfairly discriminatory. Westcott shared that throughout the regulation, there are administrative requirements an insurer must follow. “Many of the requirements are around transparency and providing information regarding the mitigation credits to your policyholders,” she said. In addition, each company is still required to make a filing even if your advisory organization has filed with the department.

Wildfire Mitigation in AAIS Manual

Linda Jancik explained that this regulation affected the homeowners by peril (HOBP) and homeowners by composite (HOC) programs at AAIS the most. Filings* were also done for agricultural output, commercial output, and inland marine guide-motor truck cargo. Wildfire risk mitigation credits are available in both California HOBP and HOC programs in the AAIS rule manual as separate rules. “The reason [for this] is that there are different ways of premium determination for these two programs,” Jancik explained. “Because in HOBP, wildfire can be isolated, whereas in HOC, their combined loss costs do not allow it to split up into individual programs.”

There are three categories of wildfire risk mitigation credits available: community coordination, property hardening, and defensible space. “Whereas the community coordination credit applies to the community you live in, property hardening measures, as well as defensible space measures, can be influenced by the policyholder,” said Jancik. “So, we can’t suppress our way out of wildfire.” She believes that communities that are coordinated, collaborative, and consistent in their wildfire mitigation efforts are likely to have lower losses and better outcomes. Property hardening measures relate to all building characteristics that help reduce wildfire risk. The risk of wildfire damage to buildings is also dependent on preventative measures such as ensuring that the area surrounding the building is clear of excessive flammable material and debris.

Rating Impact

For the community coordination credit, AAIS is proposing a 4% wildfire credit for being recognized in a FirewiseUSA site in good standing. “This 4% is larger than most of our other credits,” Mike Payne relayed. “We wanted to recognize that they have a lot of activities going on; they’re really committed. So, it was a little bit more robust.” In a California fire risk reduction community, AAIS is proposing a 1% credit. It’s a relatively new program, according to Payne, which is why it is different from the FirewiseUSA sites. “But these two pieces are technically mutually exclusive,” he added. “So, you could be in one or both of those types of communities [and] your maximum wildfire credit for community coordination would be 5%.” AAIS is proposing a 1% credit for each of the property hardening credit type activities (Class-A fire-rated roof, enclosed eaves, etc.) “It might seem small, but we really wanted to try and emphasize the fact that when you do more of these, they add up and you’ll get more of a benefit,” Payne explained. The same applies for the defensible space credit. “Again, assuming all five activities are met, you would get the 5% compounding impact and you add those together to get a total of 10% for maximum wildfire credit for defensible spaces,” said Payne. “If you add up those three components together, we are proposing a maximum of a 25% credit to the wildfire portion of the loss costs.”

Rethinking Consumer Notices & the AAIS Consumer Notice Tool

When discussing wildfire mitigation, one of the key factors that comes up is how to incentivize homeowners to take action. “The regulation that’s been put forth by CDI goes a long way to start driving change and homeowner behavior,” said Matt Hinds-Aldrich. “But we still need to instill a sense of urgency. [AAIS] discovered the importance of the consumer notice.” Because this regulation puts a lot of focus on actuarial analyses and being compliant with the law, the consumer notice tends to become an afterthought. “[AAIS] started realizing that there’s a real missed opportunity here,” Hinds-Aldrich claimed. “So, we spent time developing a consumer notice model.” In doing so, AAIS identified three key issues that needed to be addressed: comprehension, accessibility, and motivation aspects.

When creating the consumer notice sample, AAIS believed that if it was kept short, succinct, and relevant, homeowners would take full advantage of it. Information can either be put in manually through drop-down menus or in an automated fashion at scale. “Whatever the reading is, or variables that are selected, [the form] will automate all of the remaining information,” Hinds-Aldrich explained. The other component worth noting is that this form is entirely customizable by any AAIS member. “Everything can be changed from the colors to the verbiage,” Hinds-Aldrich shared. “[We] recognize that carriers are going to have to make their own choices and may have different variations when they do their own filing.” AAIS has also created a separate version of the consumer notice tool that allows companies that use catastrophic wildfire risk models to disclose the model that was used and how it operates.

If you would like to view the presentation again in its entirety, please click the video above.

Questions? Please don’t hesitate to reach out to any of the featured speakers through the contact information below.

Linda Jancik
Product Manager – Personal Lines
lindaj@aaisonline.com

Mike Payne, FCAS, MAAA
Chief Pricing Actuary
michaelpa@aaisonline.com

Matt Hinds-Aldrich, PhD
Senior Risk Strategy Lead
matth@aaisonline.com

*Note that filings for these programs have not yet been approved.

The post Webinar: Making Wildfire Mitigation Meaningful: Addressing California’s Mandatory Wildfire Mitigation Credits Regulation first appeared on AAIS.