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05/12/2025
Insurers Begin Covering AI Mishap-Related Losses
PYMNTS
Lloyd’s of London has debuted an insurance product for companies dealing with artificial intelligence (AI)-related malfunctions.
As the Financial Times (FT) reported Sunday (May 11), this launch is happening as the insurance industry tries to capitalize on concerns about the risk of losses from AI chatbot errors or hallucinations.
The policies are offered through a startup called Armilla and will cover the cost of court claims against a business if it is sued by a customer or other third party harmed by an underperforming AI product, the report said.
As the FT noted, while companies have embraced AI to increase efficiency, some tools, such as customer service bots, have yielded embarrassing, costly mistakes due to hallucinations, or when an AI model makes things up but delivers this information with confidence.
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