A spotlight on the opportunities shaping the industry. AI, data science and emerging risks

It’s the type of futuristic insurance claim we could soon be seeing. A fast-growing tech company uses artificial intelligence to screen CVs and shortlist candidates.

But the algorithm is biased against certain ethnic-sounding surnames and female candidates, leading to the sued firm triggering the AI insurance.

This type of AI insurance – whether standalone or part of a wider liability policy – has captured the attention of the insurance market.

Envelop Risk CEO Jonathan Spry is watching AI insurance closely. The insurance entrepreneur told The Voice of Insurance podcast he believes AI insurance is a great opportunity. His data-driven company is a specialist in cyber risk and underwriting. Spry says future insurance will cover liabilities in both operational AI and decision-making AI.

He says, “I think the incumbent insurers and syndicates and reinsurers will need to get their head around this opportunity pretty quickly. And I’d love to think there’s a way for Envelop to propel the opportunity, and not just think of this as a threat, but to see there’s a real business protection gap.”

Entrepreneur 

Spotting opportunities is what Spry is all about. The Oxford University business graduate enjoyed a rewarding career before founding Envelop Risk. He was an advisor, investor, analyst, and head of insurance-linked securities at S&P, as well as UK insurance divisional head at NatWest Markets. He combined all his talents into co-founding Envelop Risk in 2016.

Envelop Risk

Envelop Risk has multiple insurance functions. It is a reinsurance underwriter in emerging and cyber risks. It also helps other insurance firms confidently enter the cyber market by providing reinsurance capacity, data insights, capital and portfolio management support, and global reach. White-label solutions are part of its offering.

In other areas, it helps insurance companies reduce risk exposure through access to capital markets and alternative investors. Envelop can support clients in analytics, product development, modelling, and threat intelligence. Its balance sheet and strategic partners, MS Reinsurance and Apollo, underpin the business. 

Apollo partners with Envelop for a Lloyd’s presence through a special purpose arrangement. 

Spry told host Mark Geoghegan, “I like to think we have a bit of a vision, a bit of mission, around filling protection gaps.

“And what we’re doing is just evolving a business model that allows us to leverage other balance sheets, as well as some of our own risk taking capital, to bring the best of all of that underwriting and capital management prowess to bear so that we can service our clients.”

AI and machine learning

Spry explained that most of their work has been based on traditional machine learning. Advanced regression analysis has been used in industries like engineering and aerospace for a long time.

What’s new is the rise of advanced AI, especially neural networks and generative AI, like large language models. They mainly use ‘old-fashioned’ AI for core tasks like managing exposure and matching names, but they find generative AI useful for more complex tasks.

Algorithmic Underwriting

One of the company’s main goals is to make better decisions and reduce losses over time, while increasing efficiency. To achieve this, Envelop is exploring algorithmic underwriting and smart automation tools, which allow decisions to be made more automatically. This reduces reliance on human intervention, only being used at key moments, improving speed and accuracy.

He added: “So I want to be able to look at capital partners in the eyes and say, I’ve done a good job here.

“We’ve done a good job here of shaving a few points off a loss ratio, but we’ve also taken a few points off your expense ratio, and thanks to that, your return on capital is really exciting now compared to maybe if you’ve just taken an average punt, you know, taking the market, the index, or whatever.”

Future opportunities

Spry sees reinsurance, data and analytics as crucial to future opportunities.

He emphasised the importance of closing protection gaps, helped by the use of diverse capital sources like Lloyd’s and capital markets.

He explained that his company views tools like tail value at risk (TVaR) to improve resource allocation – underwriters are now more like capital allocators than just risk assessors.

The podcast heard the insurance industry should showcase its societal benefits and attract top talent, making it a prestigious, high-finance-like career.

The advances in technology are leading to the employment of data scientist, software engineers and a host of other roles – even if some more traditional job roles have fewer people. He said: “Let’s not dodge the difficult question. We’re probably employing fewer underwriters than we might have done as a business if we’d adopted a completely traditional approach. But these are underwriters that may not exist at all if we weren’t doing this closing protection gaps”.