AI and drone warfare will force a “complete reimagining” of how conflict risk is calculated and insured, the chief executive of Lloyd’s of London has warned, because traditional assumptions about how wars escalate may no longer hold.
Patrick Tiernan, who runs the 337-year-old insurance marketplace, told the Big Boss Interview that autonomous weapons and AI-driven decision-making could remove the warning signs and diplomatic pauses that have historically allowed insurers to adjust cover as conflicts intensify.
“When we talk about the way war is insured at the moment, it assumes that it’ll build up, that there’ll be breaks in there, and that you can increase the cover,” he said. “It’s very possible that won’t be the case as there is more drone warfare, more artificial intelligence in the decision-making. So we’re going to have to completely reimagine how we cover that.”
His warning comes as governments increase defence spending and NATO allies reassess their military commitments. Tiernan said Lloyd’s must ensure it has the capacity to insure growth in defence, energy and infrastructure, while being clearer about which forms of defence it supports.
He said the current risk environment is unlike anything in Lloyd’s history, with physical infrastructure, data and cyber systems, financial services and the international rules-based order all under pressure at the same time. “We are very underprepared for the risks we’re facing because we rely on things that maybe won’t be there tomorrow,” he said.
Tiernan also warned that the “protection gap” between economic losses and what is actually insured is widening. He said businesses and governments can no longer assume the state will step in when disaster strikes, arguing that high debt levels mean governments may not have the same financial firepower they had in the past.
He called on governments to spell out what they will and will not protect, so private capital can price the remaining risk. Businesses, he said, are being “wilfully ignorant” if they fail to understand their exposure.
A major state-backed cyberattack remains one of Lloyd’s realistic disaster scenarios and could be “deeply crippling” to the global economy, Tiernan said. He added that take-up of cyber insurance remains too low, particularly among European SMEs, despite policies offering prevention and resilience support as well as financial cover.
On the Strait of Hormuz, Tiernan said Lloyd’s drew on lessons from previous Gulf shipping disruption and the Black Sea closure during the Ukraine war. Insurance capacity remained available, he said, with crew safety rather than the price of cover the main factor affecting shipping.
He also argued that the insurance industry, and perhaps the wider economy, has lost some of its appetite for calculated risk since the financial crisis. Pointing to opportunities in undersea data centres, autonomous vehicles and AI-led drug development, he said: “The risk of missing out is greater than the risk of overstepping.”
On climate, Tiernan said Lloyd’s has added US flood, severe convective storm and fire to its realistic disaster scenarios, with flood, fire and drought all on an upward trajectory. He defended Lloyd’s continued insurance of legal, unsanctioned fossil fuel activity, but said the market should use its capital to support new energy technologies including small modular reactors, nuclear fusion and renewables.