Insurers launch cover for losses caused by AI chatbot errors
Stay informed with free updates
Simply sign up to the Artificial intelligence myFT Digest — delivered directly to your inbox.
Insurers at Lloyd's of London have launched a product to cover companies for losses caused by malfunctioning artificial intelligence tools, as the sector aims to profit from concerns about the risk of costly hallucinations and errors by chatbots.
The policies developed by Armilla, a start-up backed by Y Combinator, will cover the cost of court claims against a company if it is sued by a customer or another third party who has suffered harm because of an AI tool underperforming.
The insurance will be underwritten by several Lloyd's insurers and will cover costs such as damages payouts and legal fees.
Companies have rushed to adopt AI to boost efficiency but some tools, including customer service bots, have faced embarrassing and costly mistakes. Such mistakes can occur, for example, because of flaws which cause AI language models to 'hallucinate' or make things up.
Virgin Money apologised in January after its AI-powered chatbot reprimanded a customer for using the word 'virgin', while courier group DPD last year disabled part of its customer service bot after it swore at customers and called its owner the 'worst delivery service company in the world'.
A tribunal last year ordered Air Canada to honour a discount that its customer service chatbot had made up.
Armilla said that the loss from selling the tickets at a lower price would have been covered by its insurance policy if Air Canada's chatbot was found to have performed worse than expected.
Karthik Ramakrishnan, Armilla chief executive, said the new product could encourage more companies to adopt AI, since many are currently deterred by fears that tools such as chatbots will break down.
Some insurers already include AI-related losses within general technology errors and omissions policies, but these generally include low limits on payouts. A general policy that covers up to $5mn in losses might stipulate a $25,000 sublimit for AI-related liabilities, said Preet Gill, a broker at Lockton, which offers Armilla's products to its clients.
AI language models are dynamic, meaning they 'learn' over time. But losses from errors caused by this process of adaptation would not normally be covered by typical technology errors and omissions policies, said Logan Payne, a broker at Lockton.
A mistake by an AI tool would not on its own be enough to trigger a payout under Armilla's policy. Instead, the cover would kick in if the insurer judged that the AI had performed below initial expectations.
For example, Armilla's insurance could pay out if a chatbot gave clients or employees correct information only 85 per cent of the time, after initially doing so in 95 per cent of cases, the company said.
'We assess the AI model, get comfortable with its probability of degradation, and then compensate if the models degrade,' said Ramakrishnan.
Tom Graham, head of partnership at Chaucer, an insurer at Lloyd's that is underwriting the policies sold by Armilla, said his group would not sign policies covering AI systems they judge to be excessively prone to breakdown. 'We will be selective, like any other insurance company,' he said. Read More Tell us: have you been affected by the US insurance crisis?
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
New York Times
a day ago
- New York Times
With Few Discount Airlines, Canadian Travelers Face Steeper Fares
Against a backdrop of threats and insults from President Trump, Canadians have made a point of displaying national pride by shunning cross-border travel to the United States in favor of domestic tourism. But as many Canadians will tell you, flying within the country tends to be prohibitively expensive. The airfare from Toronto to Vancouver can often cost around the same as a ticket to Mexico or Europe, enough to nudge many would-be domestic tourists toward international travel. That was among the responses 1,500 people shared with the Competition Bureau during a yearlong study of Canada's airline market, the results of which were released on Thursday. Air Canada, the top carrier, and WestJet Airlines, the next biggest, make up the largest share of domestic air traffic. 'The level of concentration in the industry means that on many routes, travelers have limited choice and pay higher fares than they might in a more competitive environment,' Anthony Durocher, a deputy commissioner at the bureau, said during a briefing with reporters. 'Our analysis clearly shows that added competition brings important benefits.' Among those benefits are reductions in fares of up to 9 percent when new carriers enter the market, Mr. Durocher said, though he noted that those companies had found little success. Want all of The Times? Subscribe.
Travel Weekly
2 days ago
- Travel Weekly
Canada's competition bureau wants to open domestic routes to foreign airlines
In a market study report released June 19, Competition Bureau Canada recommended that the country open domestic flying to international airlines. The bureau also suggests that domestic-only airlines be allowed to be fully owned by international interests. And it recommended that Canada's limit of 25% ownership of Canadian airlines by a single investor be increased to 49%. "Allowing more foreign investment in Canadian airlines improves access to capital, drives growth, and promotes competition," the bureau said. The recommendations are among a variety of measures the bureau is suggesting to improve airline competition in what it views as the highly concentrated Canadian market. Air Canada had 34% of the domestic Canadian passenger share in 2023, the bureau said, followed by WestJet with 30%. Flair and Porter airlines are by far the two next largest carriers, with a combined market share of 19%. The report, however, does note that market concentration decreased across major Canadian airports from 2019 to 2023, with Flair, Porter and other airlines grabbing share from Air Canada and WestJet. Air Canada responded to the Competition Bureau report with its own slide show on Canadian airline competition. "Competition in Canada is as robust, if not more, than other jurisdictions," the airline said. In a series of pie charts, it showed Canada's domestic market against more concentrated markets, such as Australia, France and India. Air Canada said that if Canadian air travel fees and taxes were reduced 12.5%, to the U.S. level, it would spur 10.7% more demand. In May, Delta and Air France-KLM announced a WestJet investment. Delta agreed to purchase a 15% stake in the Canadian carrier. Upon closing, Delta plans to sell a 2.3% WestJet stake to Air France-KLM. Once both transactions are completed, Delta's investment in WestJet will amount to $280 million and Air France-KLM's $50 million.
Yahoo
3 days ago
- Yahoo
Canadians still avoiding the U.S., trips down nearly 40% in May
It looks like elbows are still up as Canadians continue to boycott the U.S through economic means. According to the latest Statistics Canada report, there was a significant decline in Canadian road trips to the United States last month — data shows a 38% decrease in May 2025 compared to the same period last year, affecting what traditionally represents the largest segment of Canadian visitors to the U.S. According to this StatsCan data, Canadian motorists making return trips to the U.S. saw significant declines in both April and May of 2025. Last month, approximately 1.3 million Canadians drove back from the U.S., representing a 38.1% decrease from the previous year. The downward trend was also evident in April, when 1.2 million return trips were recorded, showing a 35.2% reduction compared to the same time period in 2024. As well, air travel experienced a significant downturn in May, with Canadian return trips decreasing by 24.2% compared to May 2024. The decline in air travel was more pronounced than the previous month, as April saw a 19.9% year-over-year reduction in Canadian return air travelers. Airlines have experienced a significant impact from the decline, leading several carriers to adjust their U.S.-bound flight schedules to match reduced passenger demand. Several major Canadian airlines implemented service reductions in March, with Air Canada cutting flights by 10% to popular destinations such as Florida, Las Vegas and Arizona. Other carriers including WestJet, Flair Airlines and Air Transat followed suit with similar schedule adjustments. There's also a decline in American travel to Canada, with automobile trips decreasing by 8.4% — that's down from the 1,044,700 trips taken the previous year. Meanwhile, air travel from the United States to Canada experienced a minor decrease of 0.3% from 2024 levels. 1. Statistics Canada: Leading indicator of international arrivals to Canada, May 2025 This article provides information only and should not be construed as advice. It is provided without warranty of any kind. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
