Chaucer Group, a global specialty (re)insurance group, has announced the launch of a new third-party liability (TPL) insurance product co-developed with Armilla AI. The policy is designed to address the emerging risks associated with the mechanical underperformance of artificial intelligence (AI) systems and models, including potential liabilities arising from their use, a news release highlighted.
The standalone TPL product will be available to US-based clients with global territorial limits, with Chaucer leading the binder. Coverage will include losses resulting from AI hallucinations (false or misleading outputs), model drift (performance decline over time), other mechanical failures or deviations from expected AI behavior. The policy will also provide legal defense and liability protection for claims stemming from such underperformance.
This new offering expands on a previous collaboration between Chaucer and Armilla AI, which involved a warranty-style product. The relationship between the two companies began through Armilla AI’s participation in a Lloyd’s Lab cohort focused on Insurtech innovation, with Chaucer actively supporting Armilla’s growth, including sponsoring their coverholder application at Lloyd’s.
“Our partnership with Armilla AI has enabled us to co-develop a product that not only recognizes the complexities of AI underperformance but provides meaningful coverage that supports innovation, transparency, and accountability,” said Tom Graham, head of partnership and innovation at Chaucer. “This launch marks a pivotal step in how we insure the technologies of tomorrow.”
“Partnering with Chaucer marks a major milestone in our mission to make AI safer for everyone. Our new AI liability coverage empowers organizations to adopt cutting-edge technology; while knowing they’re protected against the unique risks AI can bring. At Armilla, we’ve pioneered advanced methodologies to identify and mitigate AI-related vulnerabilities—from early development to deployment at scale,” said Karthik Ramakrishnan, CEO of Armilla AI. “We’re putting these insights into action through robust insurance coverage, enabling organizations to adopt AI responsibly and confidently push the boundaries of innovation.”
The launch of this new TPL product aligns with the broader transformative impact of AI on insurance operations. Experts at the 2025 Insurtech Insights Europe conference highlighted generative AI’s potential in streamlining processes like document summarization for underwriting and claims. While acknowledging the current hype, they emphasized AI’s strength in processing unstructured data to improve efficiency. A key challenge for the industry, however, is scaling successful AI pilot projects for widespread adoption by establishing clear goals and fostering a culture of testing and learning.
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