A proprietary algorithm, developed in conjunction with the computer science department at UCL, is powering Ki, a standalone business spun out of Brit Insurance.
In collaboration with Google Cloud, Ki has launched what it claims is the first algorithmically driven Lloyd’s of London syndicate.
The new service, which will be accessible anywhere, at any time, aims to redefine the commercial insurance market as a “follow-only” syndicate, launching in 2021.
According to Brit, the creation of a fully digital syndicate is a step-change for an industry that is yet to face the disruption seen across the rest of financial services and other industries.
It said Ki’s goal is to reduce the amount of time and effort taken for brokers to place their follow capacity, creating greater efficiency, responsiveness and competitiveness. The new service will be powered by Google Cloud, which would enable it to scale rapidly, said the company.
Ki’s algorithm will be able to evaluate Lloyd’s policies and will automatically quote for business through a digital platform that brokers can access directly. The selection process is performed using a proprietary algorithm developed with support from UCL.
Ki will follow several “nominated” lead syndicates across the Lloyd’s market, including Brit, and will offer brokers a line on every risk in the selected classes led by these markets.
Algorithmic trading supports high-frequency trading in financial markets. Last year, an article by McKinsey Global Insight warned that algorithms, which use machine learning to predict whether shares will go up or down in value, can amplify some elements of model risk.
“Although many banks, particularly those operating in jurisdictions with stringent regulatory requirements, have validation frameworks and practices in place to assess and mitigate the risks associated with traditional models, these are often insufficient to deal with the risks associated with machine-learning models,” McKinsey warned.
In banking, McKinsey said machine-learning models are used in low-risk applications, such as digital marketing. “A better approach, however, and ultimately the only sustainable one if banks are to reap the full benefits of machine-learning models, is to enhance model-risk management,” the article’s authors wrote.
Discussing the use of electronic trading in the insurance market, Matthew Wilson, CEO at Brit, said: “Recent events have demonstrated the importance of electronic trading and I expect Ki to be at the forefront of the accelerated transition in how the Lloyd’s market transacts business. Through building a truly quantitative-based approach to insurance, Ki aims to do what quantitative hedge funds did to capital markets in the 1990s.”
John Neal, CEO of Lloyd’s of London, said: “Ki truly embraces all that is represented in ‘The Future at Lloyd’s’ by bringing data, technology, innovation and artificial intelligence to the fore in the complex world of corporate and specialty underwriting. It is an exciting first for Lloyd’s and paves the way for others to follow.”
Adrian Poole, head of financial services at Google Cloud, said: “As the first algorithmic syndicate, we see this as an exciting first step by Brit to support the ‘Future at Lloyd’s’ vision and are delighted to bring our market-leading technologies to support this innovative venture.”