Is Your Dealership Ready for AI? Compliance, Coverage, and Risk Management Insights

Artificial intelligence is no longer a future consideration for auto dealers. From dealership management systems to customer relationship management tools, AI is already embedded in the platforms you use every day. While these tools promise efficiency and better customer engagement, they also introduce new risks that need thoughtful management.

Where AI is Showing Up in Dealerships

Many dealers are surprised to learn they’re already using AI. Today’s dealership management systems, CRM platforms, and even HR tools often include AI components. For example:

• Dealership Management Systems (DMS): Many providers now offer AI features such as predictive reporting and automated customer follow-ups.
• Customer Relationship Management (CRM): AI can design marketing campaigns, analyze customer activity, and suggest sales opportunities.
• Service Operations: Diagnostic tools increasingly use AI to support repair accuracy and speed.
• HR and IT: From applicant tracking to cybersecurity monitoring, AI is being built into standard business platforms.

These functions create real value, but they also bring risk if left unmanaged.

The Right Way to Bring AI Into the Business

Rolling out AI should be treated with the same discipline as any other compliance-heavy initiative. Best practices include:

• Forming a governance team that includes leadership, IT, HR, finance, and operations. AI touches every corner of your dealership.
• Owning your tools and data. Employees should only use licensed tools vetted by the dealership, not personal accounts on public platforms.
• Testing before scaling. Run pilots in controlled environments, starting with non-production data, before rolling out AI tools broadly.
• Creating clear policies: Define approved uses, restricted uses, and prohibited uses. For example, hiring decisions powered by AI need oversight to avoid bias.
• Keep humans in control. AI is powerful, but employees must audit its outputs and confirm they make sense in practice.

Dealers also need to remember they are considered financial institutions under federal law. This means compliance with the FTC Safeguards Rule, privacy rules, and disposal rules remains mandatory, regardless of how new technology is layered on top.

Insurance Implications for Dealers

The insurance industry hasn’t rolled out AI-specific policies yet, but existing coverages are already responding to AI-related claims:

• Cyber Liability: Social engineering scams, ransomware attacks, and vendor misuse of customer data remain covered, even when AI is part of the threat.
• Employment Practices Liability (EPLI): Claims of discrimination tied to AI-assisted hiring or performance evaluations can fall under current definitions of discrimination.
• Garage and General Liability: If AI-driven diagnostics lead to a faulty repair and subsequent damage or injury, coverage may respond.
• Directors & Officers (D&O): Leadership could be protected if AI-related business decisions result in financial loss or litigation.

History tells us, however, that insurers will adapt quickly. As lawsuits emerge, we can expect more detailed underwriting questions, possible exclusions, and eventually endorsements tailored to AI. The path will likely mirror what happened with cyber insurance over the last decade.

What Dealership Leaders Should Do Now

For dealership executives, the real takeaway is that AI adoption is not just a technology project. It’s a leadership responsibility that spans compliance, operations, and risk transfer. Forward-thinking dealers should

• Audit your current systems to understand where AI is already in use.
• Review vendor contracts to confirm ownership and use of your data.
• Update policies and training to guide employees on safe, approved use.
• Talk to your insurance broker to confirm how your policies would respond if an AI-related incident occurred.

AI is not a passing trend. It’s a business tool that, when managed responsibly, can improve efficiency, decision-making, and customer experience. But without the right guardrails, it could also open the door to regulatory scrutiny, litigation, or uninsured losses.

The dealers who get ahead of this now will reduce risk and build a foundation of trust with customers, employees, and insurers.

Have questions about AI risk and coverage? Our team is here to help you understand how your insurance program may respond.