Why 2026 Is The Tipping Point for The Evolving Role of AI in Law and Claims

Artificial intelligence has spent the last several years pressing at the boundaries of the legal and insurance industries, generating equal parts curiosity and concern. For lawyers and claims professionals, the dominant reaction has been caution: fear of ethical missteps, hallucinated citations, data exposure, regulatory scrutiny, or reputational damage if AI is used incorrectly. While that caution was understandable, and in many respects necessary, it is no longer the prevailing force.

As we move into 2026, the legal and insurance industries are crossing an AI inflection point. The fear of missing out is beginning to outweigh the fear of messing up. In other words, FOMO is eclipsing FOMU. This shift in mindset will drive rapid and widespread AI adoption across law and claims, often outpacing governance structures, training and institutional comfort.

What makes this moment different is not simply AI technology itself, but the pace and compression of change. Business models, professional norms and decision-making frameworks that evolved gradually over decades are now being reshaped in a matter of years. For law and insurance, industries built on precedent and process, that acceleration is especially consequential.

The Quiet Integration Loudens

AI is increasingly embedded in professional workflows, often without being labeled as such. Document review and legal research are now augmented by machine-learning tools, including platforms such as Relativity, Lexis, and Westlaw, which surface relevant authority and analytical pathways at speeds no human teams can match. In insurance claims departments, AI is increasingly used to support early triage, trend analysis, and routine claim communications.

This quiet integration creates both opportunity and exposure. When properly governed, AI offers the potential for earlier issue-spotting, more consistent risk assessment, and clearer decision support across claims and legal workflows.

The risk, however, is no longer limited to obvious misuse; it increasingly lies in ungoverned use. Over the past two years, U.S. courts have issued more than 500 decisions cautioning lawyers against over-reliance on AI-generated content, with dozens imposing sanctions for citing non-existent, “hallucinated” cases in judicial filings. On the claims side, a major U.S. insurer was recently named in a class alleging that minority homeowners’ claims were subjected to heightened scrutiny based on race, in violation of the Fair Housing Act. As AI becomes embedded in the risk-evaluation process, these types of claimed ethical lapses and algorithmic bias raise the fundamental question: How can these emerging AI tools be used responsibly?

These issues are no longer theoretical. They are beginning to surface in both improved AI-assisted client and consumer service, and in closer scrutiny through disciplinary actions and potential litigation when governance falls short.

Ethics Still Govern the Technology

The legal profession is not navigating this shift without a compass. The ethical canons that have long governed legal practice, including duties of competence, confidentiality, supervision, and candor, apply with equal force in an AI-enabled environment. Guidance from national, state and local bar associations and from judges interpreting the Rules of Professional Conduct reinforces that AI is not a loophole in professional responsibility. It is simply another tool for which human lawyers remain accountable, as reflected in the growing body of cases sanctioning lawyers for citing hallucinated authority.

U.S. lawyers therefore remain personally and ethically required to understand how any AI tools they or their teams employ function, to supervise their outputs, and to ensure that their use aligns with duties owed to clients and tribunals. Similarly, insurance professionals are increasingly expected to understand how AI-enabled tools function within the claims process, to oversee their role in informing claim evaluations, and to ensure that AI-assisted workflows align with existing claims-handling practices.

Governance as Client Expectation

The key question will not be whether AI is used, but how it is controlled, documented and reviewed. Firms that treat AI governance as a strategic priority, rather than a defensive afterthought, will earn trust, reduce downstream risk, and increasingly influence panel selection, pricing discussions, and long-term client relationships.

Client expectations are evolving in parallel. As AI reshapes legal workflows, insurers and corporate clients will demand more value, not just more speed. Automation will continue to augment routine work such as document review, deposition summaries and first-draft letters.

At the same time, clients will expect their counsel to use AI to develop a more holistic and forward-looking view of the risk landscape, including how coverage positions, litigation exposure, and reputational considerations intersect. Law firms that focus on specific sectors, particularly insurance, will be uniquely positioned to unlock meaningful data insights across claims, risks, and portfolios, insights that generalist approaches will struggle to replicate.

The Need to Level Up Legal Judgment

Over the next five years, clients will expect greater transparency and differentiation. They will want to understand what work is standardized and repeatable and what work reflects experience-driven judgment applied to complex risk scenarios. This will drive more nuanced conversations around pricing, particularly in claims and coverage matters where AI can uncover patterns across portfolios, policy years, and jurisdictions.

This is where the profession must level up. AI will increasingly handle the first pass. What will justify billable hours going forward is not volume, but defensible judgment. Lawyers will need to focus on higher-end work that requires deep thinking, synthesis, and accountability, work that cannot be credibly delegated to a machine.

When properly supervised, AI can be a powerful catalyst for this evolution. Used well, it allows lawyers and claims professionals to spend more time evaluating risk and less time assembling it. Used poorly, it introduces serious risks, including hallucinated authorities, ethical violations, and regulatory breaches. Recent disciplinary cases underscore a simple truth: AI does not dilute professional responsibility; it heightens it.

The New Baseline for Judgment in Law and Claims

Over the next five years, starting now, AI-assisted workflows and AI-informed risk assessment will become standard across the legal and insurance industries. While professional norms will adjust, accountability will not. Clients will expect earlier insight and faster decision support, with the clear understanding that final judgment remains human.

This moment is defined less by the novelty of new tools than by the speed at which long-standing professional practices are being reshaped. Changes that once unfolded gradually over decades will become visible within a single strategic planning horizon.

As AI becomes embedded in how information is gathered, analyzed, and framed, it will quietly raise the baseline for professional judgment in law and claims. Decisions once made with limited or anecdotal visibility will increasingly be informed by broader data and earlier insight. In that environment, sound instinct will be strengthened, not replaced, by access to better information and the openness to explore new tools in service of sound judgment.

Mody is a partner at Kennedys based in the New Jersey office and is admitted to practice law in the state and federal courts of New York and New Jersey. He has represented insurance companies in high-exposure litigated matters impacting virtually all lines of insurance.