How can I make an player react to(Detect) AI punches

You pretty much can’t fix that. Animation-driven assets won’t respond to collision in that way.

You probably want to use a mixture of reaction animation and launching (so the player is bent or flung backward out of the way of the fist), which is what most games do to hide that overlap. If you make the overlap spheres a little bigger, you can fire that reaction soon enough to avoid visible clipping (or you can just cover it with lots of hit-reaction particle effects!)

You COULD try physassets with physics-animation blending to help shove the physics assets apart, or inverse kinematics to stop the hand short, though doing that is a real challenge, and there’s no easy way to make it work. I can’t even name any games where skeletons respond physically realistically to melee contact without any overlapping, except Overgrowth, and that game is basically just a tech demo for the ability to do that.