Just a quarter of Australian small-to-medium-sized (SME) businesses now use artificial intelligence (AI), according to a brokerage survey. However, fast forward to 2026 and six in 10 SMEs expect to be doing so.
From streamlining operations to boosting customer service, AI offers a tonne of potential and risks.
And, while SME owners might be thinking about how to embrace AI tools, are your staff already using them on the sly? A recent global Microsoft survey found most employees are discreetly using AI tools in the workplace. The survey also found 39% of employers provide AI training, while slightly more (45%) have invested in AI tools for staff.
This article offers an overview of the risks and how to manage them to ensure your business is protected.
The Rise of AI in SMEs
SMEs are finding innovative ways to integrate AI into their daily operations. Whether it’s using customer service bots to handle inquiries or data analytics to inform decision-making, AI is making a significant impact. For example, many SMEs are deploying automated processes to manage repetitive tasks, freeing up staff to focus on more strategic activities.
According to a popular generative AI app, Perplexity, here are the top 10 ways Australian SMEs are harnessing AI:
1 Create and personalise marketing content, including images, videos, and written materials tailored to their target audiences
2 Enhance customer experience using AI-powered chatbots and virtual assistants for instant and efficient customer support, improving customer satisfaction
3 Data analysis and decision-making for vast datasets, to extract insights, and make data-driven decisions about market trends, customer behaviour, and competitive landscapes
4 Innovative product development, such as to generate novel ideas, concepts, and designs for new products or refine existing ones
5 Manage social media management to streamline tasks like analysing trends, scheduling posts, generating captions, and hashtags
6 Develop presentations and graphics to save time and resources.
7 Optimise supply chain to predict demand, identify inefficiencies, and boost inventory levels for smoother operations
8 Pricing strategies, by using AI to analyse market data and optimise pricing strategies to maximise profits while remaining competitive
9 To recruit and hire by analysing resumes, screening candidates, and conducting initial interviews, and streamlining the recruitment process, and
10 For predictive maintenance based on data analysis, avoiding costly downtimes, and improving operations.
Popular apps include Google’s Gemini, Microsoft’s CoPilot, OpenAI’s ChatGPT, and Anthropic’s Claude. Australian governments have yet to recommend any particular AI app, but they are setting up advisory services and guidelines to help SMEs navigate the AI landscape effectively and responsibly.
Potential Risks of AI for SMEs
The elephant in the room is that AI continues to hallucinate, which Techopedia defines as making up information but presenting it as facts that may or may not be true. Here are some other would-be risks:
Data security
AI systems often require access to vast amounts of data, which can make them attractive targets for cybercriminals. Data breaches can occur if these systems aren’t properly secured, leading to significant financial and reputational damage.
Compliance and legal issues
With the introduction of AI, businesses must navigate a complex landscape of data protection laws and regulations (think intellectual property, too). Ensuring compliance can be challenging, especially for smaller businesses with limited resources.
Operational risks
SMEs may become overly reliant on AI technologies, which could lead to operational disruptions if these systems fail, perform unpredictably, or raise their prices significantly. This dependence can impact business continuity.
Ethical and privacy concerns
AI decision-making processes can raise ethical questions and privacy issues. For instance, if an AI system makes a biased decision, it can lead to unfair treatment of customers or employees, potentially resulting in legal consequences and damage to the company’s reputation.
Cybersecurity threats specific to AI
As an SME, be aware that using AI introduces unique cybersecurity threats. One of the key vulnerabilities is data poisoning attacks on machine learning models. That’s where malicious actors manipulate training data to compromise the AI system’s outputs. These attacks can severely impact business operations and erode customer trust.
As well, AI systems can be exploited to automate and amplify cyber-attacks, making them more efficient and harder to detect. This can lead to significant disruptions and financial losses for SMEs.
The importance of cybersecurity insurance
Cybersecurity insurance is designed to protect businesses from the financial fallout of cyber incidents. For SMEs using AI, this type of insurance could be a lifesaver. It can cover the costs associated with:
Data breaches Business interruptions, and even The legal expenses related to compliance issues.
Typical coverage includes protection against data breaches, cyber extortion, and liability for security failures. Having cybersecurity insurance can minimise the financial risks related to AI, allowing businesses to focus on growth and innovation without constantly worrying about potential cyber threats.
Partnering with your insurance brokers or advisers
Dealing with the complexities of AI risks and cybersecurity insurance can be daunting, which is why partnering with an insurance broker or adviser is essential. We can help SMEs understand their specific risks and recommend the right insurance policies to address them. We stay up-to-date with the latest industry developments, ensuring your coverage evolves with your unique business needs.
As part of our ongoing service, we conduct comprehensive risk assessments, review your current insurance policies, and make necessary adjustments to keep your business protected as AI technology advances.
Steps to Take Now
Start by evaluating your AI-related risks. Conduct a thorough risk assessment to identify potential vulnerabilities and areas of concern. Consult with an insurance broker or adviser to review your current policies and determine if additional coverage is needed.
Maintain secure AI systems by implementing robust cybersecurity measures and staying compliant with industry standards. Regularly update your systems and train your staff to recognise and respond to cyber threats. Check out this report on a survey of businesses about assessing AI risks.
So, while AI offers promise to SMEs, please balance that with the associated risks. Cybersecurity insurance can provide a safety net, and partnering with an experienced insurance broker or adviser ensures you’re well-prepared.
