Industry Technosavvy the April 2024 issue

The Ever-More Modern Marketplace

Q&A with Gilbert Harrap, CEO, InsurX
By Michael Fitzpatrick Posted on April 1, 2024
The first algorithmic underwriting platform was launched four years ago. What has been the reaction in the London market?

This market has been accelerating towards this over the last decade and in the last three to five years has really started to build momentum. That’s been coming from a variety of angles. You’ve seen momentum with the brokers, who are starting to invest in their own internal capabilities to manage data and to engage with insurers on that.

You’re also seeing this from insurers. They’re doing the same thing, starting to build their own internal capabilities, like Brit’s Ki vehicle [the digital follow-only syndicate launched in 2020]. And you’re seeing things in the market, whether it’s market bodies like Lloyd’s investing heavily in projects like PPL, their placing platform which deals with contract settlement, or private companies like InsurX building solutions to enable the market to be more efficient using digital technology.

So there’s no one party. It’s really the case of the whole market—brokers, insurers, market bodies and private companies—coming together to leverage some of this amazing technology now being created in various parts of the world and applying it to London market insurance to deliver a better product and better solutions, ultimately for end clients.

What are the advantages of the AI-based approach that are driving this change?

It’s really a question of data. People talk about how data is the new oil. Oil is powerful when it’s refined, and it’s the same for data in the insurance industry. It can be incredibly powerful, but it has to be refined to be able to use it. Over the past 20 years, the capability to refine data had been constrained. A person analyzing data can only do so much, whether they are an actuary or an underwriter. In the last decade some really powerful tools were developed to harvest very large amounts of data, organize it and take out information that can allow you to make better decisions. Those better business decisions then reward those players who do it well and continue to fund further development in the space. That’s probably what’s really accelerated this change in the London market in the last five years.

The digitalization of financial markets can happen very quickly, and it can bring massive benefits to those parties that get involved in it.”
Gilbert Harrap, CEO, InsurX
You saw that this approach could be expanded?

We saw this momentum in the market, and we knew the market was going to digitalize, but the business case for making the investments required to do that digitalization had quite a long payback period. Really, that’s the opportunity that InsurX had as the independent exchange. We sit in the middle of the market, and our singular objective is to make our partners—whether they’re brokers, whether they’re insurers—more effective in what they already do. By plugging those parties together, any one broker can access all insurers signed up on the other side of the marketplace, and vice versa for insurers. As of today, we have 11 broker partners and eight insurer partners all plugged into one ecosystem. As we build those numbers, the power of that network becomes more and more important. It’s allowing each individual broker to be better at what they currently do to serve their existing clients by plugging in to this digital infrastructure that we’re building for them.

Why is it important to be an independent exchange?

We are independent in terms of the parties that we trade with because we are not a broker, we can work with all the brokers in the market without competition concerns, and equally because we are not an insurer, we don’t want to underwrite and can work with all the insurers. That independence means that more parties can come together and work in a collaborative, cooperative manner. That’s always been the strength of the London market, this ability to work together to syndicate risks, to deal with complex risks together in a collaborative environment. InsurX, as an independent exchange, is just taking what the market has done for the past 200 or 300 years into the new digital age.

InsurX began last year in the contingency market. How did the market respond?

We launched in the contingency market because there was a fundamental customer need. InsurX looked to take a technology and a concept that a number of us were saying could be really powerful into a market segment where there was a shortage of capacity. Following the pandemic, a lot of insurers exited that class of business. But with the pandemic receding and a lot of events happening, big artists like Bruce Springsteen and Taylor Swift going back on tour and big sports events taking place, there was a need for insurance capacity. London is a leading market for contingency business, but it did not have enough insurers providing capacity. We worked with brokers to turn raw, unstructured data into something really useful to insurers. They then used it to form their own digital appetites, and we fuel those appetites through our exchange. We initially launched last year with two brokers and three insurers. By the end of the year, we had signed up seven brokers and six insurers, and we traded over $20 million of premium for those parties. We think it’s really important that InsurX is in multiple classes of business. We want to take this concept, which is now proven, into a number of new classes.

The U.S. is the world’s biggest source of insurance business, and London will want to do more business with the U.S. through these mechanisms. You’re going to see more trading and more adoption of this technology between London and the U.S.”
Gilbert Harrap, CEO of InsurX.
You’ve launched into direct and facultative property. Where is that going?

We launched into property at the tail end of last year. We initially planned to launch with four brokers, but by the time we actually launched, we had six. Within a month we had another four brokers saying they want access as soon as possible. That’s happening for a fundamental reason: the product we now serve up to brokers gives them faster capacity than they would otherwise be able to access and access to new capacity that they wouldn’t otherwise be able to access. Brokers are doing this because it allows them to serve a better product to their end clients. If they serve their clients better, they win more business.

You’re planning to expand into other specialty insurance classes this year?
The London market is well known for dealing with complex and very specialty types of risk. We have plans to expand, essentially, into all of the corporate and specialty insurance classes that are traded in the London market. Property is clearly a very big area for Lloyd’s, and we support that in the U.S. and internationally, both for very large, complex property accounts and for the middle market. We are interested in expanding into some of the specialty lines that London is well known for, so things like marine hull insurance, marine cargo, aviation, cyber, and accident and health. We will look to expand into any areas where, by leveraging our technology, our broker and our insurer partners can deliver a better product to their customers. If they’re more successful, then we’re going to be more successful.
Looking further forward, can the idea of a digital exchange for capacity expand the sources of capacity and enable trading of risk?

I see it going two ways. Firstly, we’ll be building the amount of capacity on the InsurX platform and traded in the London market. We are speaking to insurers who are not currently trading in London but would like to access the market using our digital technology. We already work with one Bermuda reinsurer to provide capacity through our platform to follow one of our existing insurers. We will see more types of capital supporting efficiently traded risk in the London market. It may come from reinsurers or insurers based around the world. It may be newer forms of capital, whether ILS [insurance-linked securities] or something else.

Secondly, the London market will start to bring its product closer to its end customers. We’ll start to see the emergence of digital technologies that make it even easier for brokers and their clients to trade more efficiently with the London market. I think it’s very likely that they will continue to trade with their existing partners but in a more efficient manner. This is a case of making faster pipes to connect the parties together rather than to cut out any individual that’s currently serving customers.

The London market has been making investments over the last couple of years to allow customers to get better, faster and cheaper access to that market. The U.S. is the world’s biggest source of insurance business, and London will want to do more business with the U.S. through these mechanisms. You’re going to see more trading and more adoption of this technology between London and the U.S.

What is happening here now is what happened on Wall Street in the ’80s and ’90s. This is no different; it has happened before. The digitalization of financial markets can happen very quickly, and it can bring massive benefits to those parties that get involved in it. What we are going to see—and it’s going to be on both sides of the Atlantic—is some massive winners and others who get left behind because they haven’t adopted or understood how this technology will shape their businesses. It’s going to fundamentally change the nature of how commercial insurance is traded.


AI Hallucinations

Generative artificial intelligence models sometimes seem like lazy college students who make things up for term papers, hoping the professor won’t notice. When AI models do this, it’s called hallucinations—in short, an incorrect or entirely fictional response to a prompt. Those hallucinations can cause real-world problems for AI users when they show up in court filings or corporate documents. Besides hallucinations, AI large language models can show gender and racial biases and act unpredictably and contrary to basic human assumptions.

Concerns about the rapidly growing use of AI and its unintended impacts have led to increased regulation. That includes the European Union’s AI Act, which addresses issues such as behavioral manipulation, social scoring, biometric use and transparency, and the Biden administration’s executive order focusing on safety, security and privacy. New York state regulators have proposed guidance for insurers on the use of AI and consumer data in underwriting.

To address concerns about AI reliability and safety, the Responsible AI Institute has launched three benchmarks: for corporate AI policy; for assessing and mitigating the risk of large language model hallucinations; and for vendor alignment with ethical and responsible AI policies. The RAI Institute, which is developing an independent AI certification framework, has partnered with AI risk mitigation company Armilla AI to offer access to Armilla’s verification and warranty products. Armilla recently raised $4.5 million in seed funding to scale its Armilla Guaranteed quality assessment and performance guarantee for AI products. The warranties are backed by Swiss Re, Greenlight Re and Chaucer.

Guardrails AI, which offers open-source AI validation tools, has introduced the Guardrails Hub that lets developers build, contribute and share advanced validation techniques for large language models. Guardrails’ “validator” tools help to reduce hallucinations by confirming facts, ensure chatbot communications remain on brand and message, and enforce policies and regulations in AI automated work. Guardrails recently closed a $7.5 million seed funding round.

Michael Fitzpatrick Technology Editor Read More

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