Traditional insurance can’t handle the extreme risks of frontier AI. Catastrophe bonds can cover the gap and compel labs to adopt tougher safety standards.
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Making extreme AI risk tradeable
The most notable example of ILS are catastrophe (cat) bonds. Typically covering natural disasters and cyberattacks, cat bonds are designed to offload extreme risks that conventional insurers struggle to hold. A reinsurer sponsors a bond that pays a high yield but automatically absorbs losses in the event of a predefined disaster. In effect, capital markets become the backstop for extreme events.
