Too Big to Fail, Too Catastrophic to Insure: Making the Labs Pay for AI's Risk
Fernando Moreno
The multiple labs developing AI models compete with one another under the pressure of an “arms race” (Scott Alexander’s Moloch problem). This creates a unilateral incentive to cut corners on safety protocols, amplifying risks. One of the arguments frequently raised against an eventual pause by the labs is that the arms race also takes place between nation-states (the “new cold war” between the US and China), making the geopolitical problem more complex given the difficulty of credibly enforcing agreements not to develop the technology.
Considering this, this article proposes a stopgap solution: shared financial liability among labs. If a lab causes damage that exceeds its ability to pay (even driving it into bankruptcy), the remaining labs in the industry are jointly and severally liable for the excess, with each firm’s share proportional to its own risk profile (measured by compute, parameter count, revenue, or a combination of several metrics).
We should be clear here that the proposal does not solve existential risk — the scenario in which humanity is extinguished or permanently loses control over its future. It is argued, more modestly, that there is a band of Global Catastrophic Risk (GCR) — events of terrible but non-terminal harm — for which financial liability instruments have real power to discipline behavior, precisely because they presuppose the existence of an “after” in which compensation still means something. Nevertheless, even this mechanism could, to some extent, help reduce existential risk, if it makes the labs more careful overall.
This is a clear and promising policy proposal. Its strongest contribution is to treat AI lab liability not only as compensation after harm, but as an ex ante coordination mechanism. The core intuition is good: if labs know they may have to pay for catastrophic harms caused by their competitors, they gain a direct financial interest in each other’s safety practices. That could help counteract the race dynamic in which each lab has an incentive to cut corners while externalizing downside risk onto society.
The Price-Anderson analogy is also useful. A layered structure (mandatory own coverage, a mutualized industry pool, and an ultimate state backstop) is a concrete way to think about catastrophic risks that exceed any single firm’s ability to pay. The paper is appropriately modest in saying that this does not solve existential risk, but may be relevant for the band of severe non-terminal global catastrophic harms where compensation and deterrence still have meaning.
The main weakness is that the proposal remains at the level of a policy essay rather than a workable legal design, which the paper recognizes. The paper would need to specify what triggers liability, who determines causation, what standard of proof applies, whether liability is strict or fault-based, how damages are quantified, and how model provenance would be established when harms are diffuse, emergent, or caused by interacting systems. The causal-attribution problem is not just a limitation; it is central to whether the mechanism can function. The risk-weighting mechanism also needs much more development. A further issue is industry structure. Shared liability could create useful peer monitoring, but it could also entrench incumbents. The international dimension also needs sharpening. There is existing literature which can help in these next steps.
Overall, this is a strong and interesting conceptual proposal with high potential relevance. Its next versions should become more institutional: define the liability trigger, the attribution process, the fund design, the risk formula, governance of the pool, antitrust safeguards, the international adoption pathway, etc. The paper’s central insight is valuable, but the implementation details determine whether shared liability disciplines frontier labs or not.
This is a creative and clearly relevant policy proposal that addresses a central AI safety coordination problem: how to design financial and institutional incentives that support stronger safety practices in a highly competitive frontier AI ecosystem. The shared-liability mechanism is promising, and the analogy to the Price-Anderson Act gives the proposal a concrete institutional anchor that makes the idea easier to evaluate. A strong next step would be to further develop the legal and operational design of the regime, including attribution standards, risk-weighting formulas, institutional responsibilities, and safeguards against unintended effects. The presentation is concise, readable, and careful in distinguishing global catastrophic risk from existential risk. Overall, this is an original and promising contribution that would benefit from deeper engagement with AI liability, insurance, tort, and financial-risk literature to move from a compelling concept toward an implementable policy model.
Cite this work
@misc {
title={
(HckPrj) Too Big to Fail, Too Catastrophic to Insure: Making the Labs Pay for AI's Risk
},
author={
Fernando Moreno
},
date={
},
organization={Apart Research},
note={Research submission to the research sprint hosted by Apart.},
howpublished={https://apartresearch.com}
}


