AI Liability Insurance Buyer's Guide
Underwritten In brief: the short version

Who Insures the Machine, in brief

The 4-minute version of Who Insures the Machine.

Written by

Joel R. Singh

Section

Underwritten

Published

2026-10-17

Your business renews its insurance, and a new clause says the policy will not pay for claims caused by artificial intelligence. If you use chatbots, image generators, or software that makes decisions on its own, that clause matters. For years, business policies said nothing about AI. Now a growing number of them exclude it by name. A new insurance market has formed to fill that gap, and this brief explains who is in it and how it works.

The same thing happened with cyber risk a few years ago. Insurers added exclusions, and then a separate market grew up to sell cyber cover on its own. AI is following that path.

This market is real. Insurers have put real money behind it to pay claims. Lloyd's of London, the large insurance marketplace, has played a central part in building it. Big reinsurers, the companies that insure insurance companies, stand behind the policies. You can buy this cover today through specialist brokers. If your last renewal left AI out, you now have options.

How This Market Works

AI cover is sold differently from a typical business policy. Well-known insurers are not filing standard forms with every state. Instead, the market rests on four parts.

A stack of four layers showing who stands behind one AI liability policy. At the top, you, the insured, buy the policy through a broker. Below that, a managing general agent or Lloyd's coverholder writes and prices the cover: firms such as Testudo, Armilla and Relm. Below that, carrier capacity signs the risk: Lloyd's syndicates and insurers such as Hiscox and Munich Re. At the bottom, reinsurance insures the insurer and absorbs the largest losses. Premium flows down the stack and a paid claim flows back up it. The lower three layers are bracketed as the surplus lines market, which is not filed with your state insurance department.
Four layers, one policy. The firm whose name is on the paper is usually the one that priced the risk, not the one that carries it. Diagram by iSinghLabs.

The first part is the accelerator. Lloyd's Lab is a program that helps insurance start-ups build new products. It gives them mentoring and connects them with the capital that backs policies.[1] When a company is called "Lloyd's Lab-backed," it means the Lloyd's market picked it, coached it, and linked it to that money.

The second part is the managing general agent (MGA). An MGA is a firm that an insurer allows to underwrite on its behalf. In plain terms, the MGA decides whom to insure and what to charge.[2] At Lloyd's, these firms are called coverholders.[3] The MGA brings the know-how about AI risk, and the insurer brings the money.

The third part is the surplus lines market. This corner of the industry covers risks that standard insurers will not write.[4] These risks tend to be unusual or hard to price. AI liability fits well, because there is almost no loss history to price it from. Surplus lines policies are usually not "admitted," which means they are not filed with and approved by your state's insurance department.

The fourth part is reinsurance, which is insurance for insurance companies.[5] It lets an insurer take on a large or unfamiliar risk without putting its own survival on the line. Reinsurers help absorb the biggest losses that AI claims could bring.

Who’s Offering AI Insurance?

Testudo shows the whole system at work. It is an MGA backed by Lloyd's Lab that writes AI liability cover. Its policies cover errors in AI output, privacy breaches, and legal costs when a company is sued over its AI. It offers up to $9.25 million in cover per insured, backed by several Lloyd's syndicates.[6] In August 2026, Testudo told us that limit has risen to $10 million.

Armilla offers similar cover. It focuses on AI that underperforms, such as results that are wrong or biased.[7] Relm Insurance sells a Difference in Conditions (DIC) policy called PONTAAI.[8] This kind of policy[9] sits on top of your existing cover and fills the gaps it leaves, including the AI risks those policies now exclude.

Established insurers are joining in too. HSB, part of Munich Re, now sells AI liability cover to small and mid-sized firms. It adds the cover to existing policies sold through partner companies.[10] CFC is building AI cover into several of its current products.[11] Vouch, working with Hiscox, focuses on AI cover for start-ups.[12]

A printed page from an 1862 American insurance directory headed Office of the Sun Mutual Insurance Company, 49 Wall Street, New York. It sets out the company's premiums received, its losses on marine, inland and fire risks, a line for expenses and reinsurances, its net profits, and an itemised statement of the assets standing behind the company: real estate, bonds and mortgages, stocks, cash, bills receivable and premium accounts. Beneath the figures is a two-column list of the names of the trustees.
Sun Mutual Insurance Company, statement of affairs to 4 October 1861, printed in Joseph B. Ecclesine's American Underwriter's Manual and Insurance Directory for 1862-3 (New York: Grierson & Ecclesine, 1862). Before you could buy, you could read the assets, the reinsurance line and the names of the trustees. That is the same question this brief asks about an AI policy. Library of Congress. Public domain.

Why Now, and What’s Next?

The market is growing fast for a simple reason. Once standard policies began to exclude AI, businesses needed another way to protect themselves, and new insurers stepped in to sell it.

The wider market for AI in insurance is expected to reach over $100 billion in the next few years.[13] That figure also counts AI that insurers use in their own work, but it shows how central AI is becoming to the industry.

Works Cited

  1. 1Lloyd's of London, Lloyd's Lab Accelerator https://www.lloyds.com/insights/lloyds-lab/programmes-and-initiatives/lloyds-lab-accelerator
  2. 2International Risk Management Institute (IRMI), Managing General Agent (glossary) https://www.irmi.com/term/insurance-definitions/managing-general-agent
  3. 3Lloyd's of London, Coverholders (Delegated Authorities) https://www.lloyds.com/market-resources/delegated-authorities/coverholders
  4. 4National Association of Insurance Commissioners (NAIC), Surplus Lines (CIPR topic) , with corroboration from IRMI, Surplus Lines Insurance (glossary) https://content.naic.org/cipr-topics/surplus-lines
  5. 5International Risk Management Institute (IRMI), Reinsurance (glossary) https://www.irmi.com/term/insurance-definitions/reinsurance
  6. 6FinTech Global, Testudo Expands AI Liability Capacity to $9.25M , corroborated by Testudo, Testudo Insurance https://fintech.global/2026/03/09/testudo-expands-ai-liability-capacity-to-9-25m/
  7. 7PR Newswire (Armilla), Armilla Launches Affirmative AI Liability Insurance with Lloyd's Underwriter Chaucer https://www.prnewswire.com/news-releases/armilla-launches-affirmative-ai-liability-insurance-with-lloyds-underwriter-chaucer-302442586.html
  8. 8Relm Insurance, Relm's PONTAAI Solution https://relminsurance.com/relms-pontaai-solution-ai-insurance-coverage-beyond-existing-liability-programs/
  9. 9International Risk Management Institute (IRMI), Difference in Conditions (DIC) Coverage (glossary) https://www.irmi.com/term/insurance-definitions/difference-in-conditions
  10. 10Munich Re / HSB, Introducing AI Liability Insurance for Small Businesses (March 18, 2026) , with trade confirmation from ReinsuranceNe.ws https://www.munichre.com/hsb/en/press-and-publications/press-releases/2026/2026-03-18-introducing-ai-liability-insurance-for-small-businesses.html
  11. 11CFC, CFC Responds to Customer Demand for Affirmative AI Cover (June 2026) https://www.cfc.com/en-us/knowledge/news/2026/06/cfc-responds-to-customer-demand-for-affirmative-ai-cover/
  12. 12Vouch, AI Insurance (with Corix, a Hiscox division) https://www.vouch.us/technology/ai
  13. 13Mordor Intelligence, AI in Insurance Market https://www.mordorintelligence.com/industry-reports/ai-in-insurance-market
HOME