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Algorithm-driven underwriter gets $500m backing

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Ki, a Lloyd's syndicate that uses algorithms to do its underwriting, has received $500 million of committed capital from two backers.

The backing from funds managed by Blackstone Tactical Opportunities and Fairfax Financial Holdings Ltd will help fund the expansion of the business, which is set to launch in the fourth quarter of this year.

In a statement, Ki said it would write its first risk incepting in January 2021. The syndicate will “underwrite using an algorithm-driven approach and offer instant follow capacity through its proprietary digital platform”, Ki added.

Ki will write a broad range of specialty business.

Lloyd's insurer Brit formed Ki in close partnership with Google Cloud, while the computer science department at University College London helped to design the algorithms.

The system allows brokers to access a quote remotely and within a matter of minutes and could help Brit reduce costs by cutting out what is often a lengthy process.

James Birch, head of innovation at Brit, told Techworld when Ki's creation was first announced in May: “We looked at capital markets for inspiration and wondered why we couldn't do the same for specialist insurance, to take a quant-based approach and use data science to improve the performance for easy matching of risk and capital.”

Burkhard Keese, chief financial officer at Lloyd's of London, said: “We are delighted to see Blackstone entering Lloyd's at this key moment in our modernisation, illustrating the appeal of our market.

“Ki is fully aligned to the Lloyd's Blueprint, driving the adoption of new technology to deliver a more competitive market, and we wish the team success as it launches later this year.”

Matthew Wilson, chief executive officer of Brit and chairman of Ki, said: “Our partnership with Fairfax and Blackstone on the launch of Ki will allow the business to reach its full potential with significant committed capital.

“Blackstone has a phenomenal track record and is entering the Lloyd's market at a pivotal moment, with increased acceptance of digital models and a flight to quality.”

Mark Allan, CEO of Ki and group CFO of Brit, said: “Securing support from Blackstone, one of the world's leading investment firms, is a significant statement of confidence in Ki and the vision we have set out.

“Blackstone's commitment to Ki completes our world-class group of partners with Fairfax, Brit, Google Cloud and UCL already supporting the business.

“With our investors, we have the financial firepower to rapidly scale the business and support our plan to provide a truly differentiated offering to brokers and clients.”

Technology could put most insurance underwriters out of a job over the next decade, says an industry expert.

In June this year, Peter Cullum, founder of London-based insurance broker Global Risk Partners and an executive with five decades of insurance industry experience, said he believed digitisation would change the face of the industry.

In an interview in Britain's The Telegraph newspaper, Mr Cullum said: “Insurance is one business that is all about data. It's about numbers. It's about the algorithms. Quite frankly, in ten years' time, I predict that 70 per cent or 80 per cent of all underwriters will be redundant because it will be machine driven.

“We don't need smart people to make what I'd regard as judgmental decisions because the data will make the decision for you.”

In an insurance company, an underwriter is responsible for evaluating risks and pricing premiums appropriately. The view that this role is vulnerable to the advance of technology is not new.

An Oxford University paper entitled The future of employment: how susceptible are jobs to computerisation? by Carl Benedikt Frey and Michael Osborne, found underwriter to be among the most vulnerable roles among more than 700 jobs they studied, with a 99 per cent susceptibility rating.

The US Bureau of Labour Statistics projects a 5 per cent decline in employment of insurance underwriters from 2016 to 2026.

The prospect of computers taking over from underwriters is significant for Bermuda, as a global re/insurance hub.

The island was home to 440 underwriters in 2019, more than two-thirds of them Bermudian, according to the Bermuda Government's Employment Briefs 2020 survey. This number was up from 374 underwriters in 2014.

They are also significant earners. The Employment Briefs 2017 report showed that underwriters had a mean gross income of around $200,000.

In an interview with The Royal Gazette last year, Laura Hay, KPMG's global insurance leader, warned that insurers had to “digitise or die”, as they faced competition from tech-savvy rivals.

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Published September 18, 2020 at 8:00 am (Updated September 18, 2020 at 2:34 am)

Algorithm-driven underwriter gets $500m backing

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