New data analysis tool will help insurance firms assess probable liabilities

State-of-the-art software enabling insurance companies to judge with unprecedented accuracy how much cash to keep in the bank will help the industry thrive. It will lead to higher profits, an ability to insure more and more competitive premiums for customers.

The innovative new tool will equip individual insurance firms to assess probable liabilities arising from their specific mix of products and customers. This will help them avoid overcompensating for risk by keeping too much cash in reserve, which can act as a serious brake on business growth. The tool builds on a patent secured by the University of Liverpool.

Start-up firm Intellegri is taking it to market and recently signed an exclusive licensing agreement with Liverpool to exploit, in the insurance space, intellectual property arising from the research.

A key component in the UK’s world-leading financial services sector, the insurance industry must comply with a regulatory regime designed to safeguard its success and resilience.

The Solvency II directive sets out requirements on cash reserves, aiming to ensure firms hit the “sweet spot” of having sufficient reserves to pay claims without tying up cash unnecessarily. This is especially challenging for the 80% of insurance firms that:

• lack resources to develop bespoke statistical models
• have to use a ‘one size fits all’ standard formula to calculate their capital reserve needs

This formula treats companies as the same and does not account for the unique make-up of an individual firm’s product and customer portfolios.

Affordable and easy to use, the new tool addresses all of these problems head-on. The project is developing new algorithms that can harness the increasingly powerful computing hardware now available to deliver improved use of statistical models. This will result in reliable inferences being made from big, complex datasets more cheaply and quickly.

Big Hypotheses also utilizes skills developed at the EPSRC Centre for Doctoral Training in Distributed Algorithms, based at the university.

Potential fields of application include health care and defense and security. Contacts with the insurance industry highlighted the scope for this sector to benefit from Big Hypotheses too.

An EPSRC impact acceleration account honed project outputs with this industry’s needs in mind. This prepared the way for the licensing agreement with Intellegri, where insurance experts work alongside members of the Liverpool research team.

A prototype commercial version of the tool is now in development and talks are under way with potential customers.

Less risk, more reward

Professor Charlotte Deane, EPSRC’s executive chair, says, “The UK is a global leader in financial services and a healthy insurance industry is vital to the sector’s continuing success. This new tool, made possible by EPSRC support for cutting-edge research and state-of-the-art training, will aid the industry’s decision-making, as well as visibility and accountability.

“It will not just help safeguard insurance firms against future events but enable them to channel more resources into serving new and existing markets more efficiently and cost-effectively.”

Professor Simon Maskell of the University of Liverpool, who is leading Big Hypotheses and is on Intellegri’s board, says, “Dovetailing statistics, computer science, math, psychology and business expertise, our work provides a practical basis for all kinds of organizations to calculate probabilities of future events more accurately and without under- or overstating risk. We believe the new software tool could be in routine use by large swathes of the insurance industry in the UK, Europe and beyond within three to five years.”