Chatbots, once praised for making customer service easier, are now causing concern in the world of cyber insurance and legal risk. Experts warn that the way these AI tools collect and use personal data could lead to a surge in lawsuits and stricter regulations.
The rise of chatbots comes with new privacy challenges. They collect information from users in real time, often without clear explanations or consent. Jennifer Wilson, head of cyber at Newfront, points out that wrongful data collection is one of the top cyber risks companies face today, just behind ransomware attacks. Lawsuits have already begun under laws like the European Union’s GDPR, California’s CCPA, and Illinois’ BIPA. These cases often involve chatbots saving conversations without permission, recording chats without telling users, or sharing data with third-party AI vendors.
A key issue is whether people agree to their data being used, and if so, how they give that consent. Wilson says companies should get clear, opt-in consent and be upfront with what they do with the information. If they don’t, they could face heavy fines—especially under laws like BIPA, which charges per violation.
Chatbots in industries like healthcare and retail are getting extra attention because they often handle sensitive personal or health information. Sarah Thompson of MSIG USA explains that users might not fully understand how their details are stored or shared when they interact with these bots. Joshua Mooney from the law firm Kennedys adds that website owners can also be held responsible if their sites use chatbots or AI tools without proper disclosure. Courts may consider whether these companies knowingly allowed unauthorized access to private communications.
Beyond privacy concerns, there’s another legal battleground emerging around how AI models are trained. Many companies use customer chat data, copyrighted content, or secret business information to teach AI systems. Wilson mentions a recent $1.5 billion settlement over the use of copyrighted materials without proper permission. The lesson is clear: even if training AI is allowed, it must be done through legal channels. Using pirated or unauthorized data, including chatbot conversations, risks triggering both privacy and intellectual property lawsuits.
Insurance companies are starting to respond by updating how they assess risks. They’re asking businesses detailed questions about chatbot use, how data is handled, and agreements with AI vendors. Wilson warns that relying on basic privacy policies or cookie notices is no longer enough. Companies must document clear consent, explain exactly what happens with the data, and track its use carefully.
To avoid getting caught up in legal trouble, experts recommend several steps. Businesses should require explicit opt-in consent for chatbots that collect personal information and openly tell users when these tools are in use. They need to carefully review contracts with AI providers to limit how data is used and shared. Establishing clear internal rules about data handling and AI use is also important.
As chatbots become a common part of online interactions, their potential risks are becoming impossible to ignore. The advice from experts is simple: be transparent, get proper consent, and respect the legal rules around data and copyright. Doing this will help companies avoid serious legal battles down the road.