Risk Management & Insurance Advisory · Nolasko
AI Adoption in Public Sector
& K-12 Schools: What You Need to Know
AI adoption in the public sector and K-12 schools is lagging behind the private sector — and that gap is creating both risk and missed opportunity. According to the 2025 Gallagher Attitudes to AI Adoption and Risk Survey, 76% of business leaders expect AI to increase employee efficiency and productivity when the right tools and training are in place.
76%
Expect Efficiency Gains
58%
IT Depts Using AI
37%
Customer Service
34%
Finance Teams
The Core Challenge
AI Is Already In Your Organization —
With or Without a Policy
Public sector employees and students are already using AI tools on personal phones and computers, often without any guidance, governance, or awareness of the risks involved. Budget constraints, privacy concerns, and lack of in-house expertise have slowed formal adoption — but informal use is well underway.
As Ben Warren, Head of Digital Transformation and AI at Gallagher, notes: the difference with this technology wave is that AI tools are literally in everyone's pockets. Without clear policies, organizations face inadvertent data breaches, over-reliance on AI-generated output, and serious ethical and compliance exposure.
Opportunities
- Efficiency: Automates repetitive tasks like processing applications, document redaction, and managing public inquiries — freeing staff for higher-value work
- Availability: AI-powered chatbots and virtual assistants provide 24/7 citizen support and reduce administrative backlogs
- Data analysis: Processes vast datasets in minutes — identifying trends in public health, crime patterns, and economic planning
- Decision-making support: Helps policymakers analyze risks, detect inefficiencies, and allocate resources using data-driven insights
- Personalized education: Supports individual student needs with continuous, adaptive learning tools
Hurdles & Risks
- No guardrails: Employees using AI without policy guidance creates data breach exposure and compliance risk
- AI hallucinations: Incorrect AI output in legal, healthcare, or policy decisions can have serious downstream consequences
- Ethical bias: AI models trained on biased data can produce discriminatory outcomes in predictive policing, hiring, and social services
- Workforce anxiety: Without change management, employees fear job displacement rather than embracing augmentation
- Budget barriers: Cost of implementation remains a significant obstacle for public entities with limited technology budgets
Source: Seizing Opportunity: Navigating AI Adoption in Public Sector and K-12 Schools — © 2025 Arthur J. Gallagher & Co. | ajg.com · Survey data: 2025 Gallagher Attitudes to AI Adoption and Risk Survey.
Practical Applications
AI Use Cases in the
Public Sector & K-12
Despite the challenges, AI adoption in the public sector is already delivering measurable results across these key functions. Gallagher's survey found IT departments are most likely to have adopted AI (58%), followed by customer service (37%) and finance (34%).
Fraud Detection
Machine learning algorithms analyze financial and transactional data to flag suspicious patterns in government procurement, social welfare, and taxation — protecting public funds.
Virtual Assistants
AI-powered chatbots handle the volume of daily citizen inquiries, reducing wait times and administrative burden while improving government responsiveness around the clock.
Traffic & Infrastructure
Real-time data from sensors, GPS, and surveillance systems helps reduce urban congestion, improve public transit planning, and optimize city infrastructure management.
Document Processing
AI handles legal document review, public records requests, and report generation — significantly reducing administrative workload for government agencies and school districts.
Predictive Analytics
Agencies use AI to anticipate challenges, allocate resources efficiently, and inform policy decisions using data-driven trend analysis across public health, education, and public safety.
"Although ChatGPT has recently introduced AI to a global audience, the technology behind its success has been in use for many years. As a former risk manager and data analyst in the public sector, I used machine learning algorithms to identify root causes and perform predictive modeling — making recommendations that reduced costs and increased efficiency."
Shannon Gunderman
Senior Consultant, ERM & Operations Director, Public Sector & K-12 Education Practice — Gallagher
K-12 Education Focus
The AI Plagiarism Challenge
in K-12 Schools
AI-generated content has created a pressing dilemma for K-12 educators: how do you detect AI-written student work while simultaneously preparing students for an AI-driven future? Banning AI outright is not a realistic solution — students will find workarounds. The focus must shift to AI literacy and responsible use.
⚠️ The Challenges
- Students submitting AI-generated essays as their own work
- AI detection tools are not foolproof — they sometimes falsely flag original student writing
- Outright bans are difficult to enforce and easy to circumvent
- No clear nationwide policy framework leaves schools inconsistently equipped
✓ The Solutions
- Focus on AI literacy — teach students how to use AI ethically and responsibly
- Position AI as a brainstorming and revision tool, not a replacement for student thinking
- Emphasize critical thinking and reasoning skills that AI cannot replicate
- Establish clear, school-wide AI use policies that balance innovation with academic integrity
🎯 Key Takeaway: AI should enhance learning, not replace it. Schools must set clear AI policies to balance innovation with academic integrity. — Gallagher, 2025
Context
A Brief History of AI:
From Theory to Your Pocket
Understanding where AI came from helps organizations make more informed decisions about where it is going — and why governance frameworks need to move as fast as the technology itself.
1950
Alan Turing introduces the "Turing Test" — the foundational concept for measuring machine intelligence
1956
John McCarthy organizes the Dartmouth Conference, formally establishing AI as a field of academic study
1980s–90s
Expert systems and early machine learning models begin gaining traction in enterprise and research applications
1997
IBM's Deep Blue defeats chess world champion Garry Kasparov — a landmark moment for AI problem-solving capability
2011
IBM's Watson wins Jeopardy!, demonstrating AI's natural language processing capabilities to a mass audience
2023–Present
ChatGPT-4 and other large language models achieve mainstream adoption — AI is now on every phone, in every classroom, and in every workplace
2025
Chinese AI startup DeepSeek tops app download charts, rattling global tech markets and underscoring how rapidly the AI landscape continues to shift
Timeline source: Seizing Opportunity: Navigating AI Adoption in Public Sector and K-12 Schools — © 2025 Arthur J. Gallagher & Co. | ajg.com
What Leaders Must Address
Four Key Concerns for
AI Adoption in the Public Sector
Responsible AI adoption in the public sector and K-12 schools requires organizations to proactively address these four areas before deploying any AI-driven tools or workflows.
Ethics & Bias
Transparency and accountability must be built into every AI implementation. Algorithms trained on historical data can amplify bias in law enforcement, hiring, and social services — due diligence on vendor selection is essential.
Regulation & Compliance
As AI becomes mainstream, governments must stay ahead of evolving rules on data privacy, bias mitigation, and responsible AI use. Compliance frameworks need to be built before incidents occur, not after.
Workforce & Change Management
Employers need effective change management programs to shift the narrative from "AI replaces jobs" to "AI augments roles." Workers need training, guidance, and clear policies to move forward confidently.
Energy & Sustainability
Training large AI models consumes significant computational power. Public institutions must balance the operational benefits of AI adoption against sustainability goals and energy consumption commitments.
"At Gallagher, we have seen firsthand how organizations have been accidentally misusing AI tools, and the risks can be significant. Employers and educators must establish strong AI principles, building them into governance frameworks that offer flexibility and guardrails."
Ben Warren
Head of Digital Transformation and AI, Communication Consulting — Gallagher
Source: Seizing Opportunity: Navigating AI Adoption in Public Sector and K-12 Schools — © 2025 Arthur J. Gallagher & Co. All rights reserved. | ajg.com · Insurance brokerage services provided by Arthur J. Gallagher Risk Management Services, LLC. License Nos. IL 100292093 / CA 0D69293. This page summarizes third-party research for informational purposes and is not intended as legal, financial, or insurance advice.
Is Your Organization Ready
for AI Adoption?
Whether you're a public sector agency or a K-12 school district, the risks and opportunities of AI adoption require a knowledgeable insurance and risk management partner in your corner. Talk to Nolasko about protecting your organization as you move forward.
Carlos Nolasco
Nolasko · Commercial Insurance & Risk Advisory
832-253-8329
nolasko.com
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