AI Use Cases for Data-driven Reinsurers

Published on Dec 19, 2019

Updated on May 11, 2020

Across the Insurance expansile, a special fraction within the industry is notable for its embrace of new technologies ahead of others. For an industry that notoriously keeps a straggling pace behind its banking and financial peers, Reinsurance has conventionally demonstrated a greater proclivity for future-proofing itself. In fact, they were one of the first to adopt cat-modelling techniques in the early ’90s to predict and assess risk. This makes perfect sense too — ‘Insurance for insurers’ or reinsurance is the business of risk evaluation of the highest grade — which means there are hundreds of billions of dollars more at stake.

Front-line insurers typically practice transferring some amount of their risk portfolio to reduce the likelihood of paying enormous claims in the event of unforeseen catastrophe losses. For most regions of the World — wind and water damage through thunderstorms, torrential rains, and snowmelt caused the highest losses in 2019.

In the first half of 2019 itself, global economic losses from natural catastrophes and man-made disasters totalled $44 billion, according to Swiss Re Institute’s sigma estimates. $25 billion of that total was covered by reinsurers. Without the aid of reinsurance absorbing most of that risk and spreading it out, insurance companies would have had to fold. This is how reinsurance protects front-line insurers from unforeseen events in the first place.

Yet, protection gaps, especially in emerging economies still trails behind. Only about 42 per cent of the global economic losses were insured as several large-scale disaster events, such as Cyclone Idai in southern Africa and Cyclone Fani in India, occurred in areas with low insurance penetration.

Reinsurance can be an arduous and unpredictable business. To cope with a prolonged soft market, declining market capital and shaky investor confidence — reinsurers have to come up with new models to boost profitability and add value to their clients.

For them, this is where Artificial Intelligence and the sisterhood of data-driven technologies is bringing back their edge.

Source: PwC – AI in Insurance Report

AI Use Cases for Reinsurers

Advanced Catastrophe Risk Modelling

Catastrophic models built on machine learning models trained on real claims data, and ethno- and techno-graphic parameters can decisively improve the authenticity of risk assessments. The models are useful tools for forecasting losses and can predict accurate exposure for clients facing a wide range of natural and man-made risks.

Mining Data for behavioural risks can also inform reinsurers about adjusting and arranging their reinsurance contracts. For example, Tianjin Port explosions of 2015 resulted in losses largely due to risk accumulation — more specifically accumulation of cargo at the port. Static risks like these can be avoided by using sensors to tag and monitor assets in real-time.

RPA-based outcomes for reducing operational risks

RPA coupled with smart data extraction tools can handle a high volume of repetitive human tasks that requires problem-solving aptitude. This is especially useful when manually dealing with data stored in disparate formats. Large reinsurers can streamline critical operations and free employee capacity. Automation can reduce turn-around-times for price/quote setting in reinsurance contracts. Other extended benefits of process automation include: creating single view documentation and tracking, faster reconciliation and account settlement time, simplifying the bordereau and recovery management process, and the technical accounting of premium and claims.

Take customised reinsurance contracts for instance that are typically put together manually. Although these contracts provide better financial risk control, yet due to manual administration and the complex nature of such contracts — the process is prone to errors. By creating a system that can connect to all data sources via a single repository (data lake), the entire process can be automated and streamlined to reduce human-related errors.

Risk identification & Evaluation of emerging risks

Adapting to the risk landscape and identifying new potential risks is central to the functioning of reinsurance firms. For example, if reinsurance companies are not interested in covering Disaster-related insurance risks, then the insurance companies will no longer offer this product to the customer because they don’t have sufficient protection to sell the product.

According to a recent research paper, the reinsurance contract is more valuable when the catastrophe is more severe and the reinsurer’s default risk is lower. Predictive modelling with more granular data can help actuaries build products for dynamic business needs, market risks and concentrations. By projecting potential future costs, losses, profits and claims — reinsurers can dynamically adjust their quoted premiums.

Portfolio Optimization

During each renewal cycle, underwriters and top executives have to figure out: how to improve the performance of their portfolios? To carry this out, they need to quickly assess in near real-time the impact of making changes to these portfolios. Due to the large number of new portfolio combinations that can be created (that run in the hundreds of millions), this task is beyond the reach of pure manual effort.

To effectively run a model like this, machine learning can shorten the decision making time by sampling selective combinations and by running multi-objective, multi-restraint optimization models as opposed to the less popular linear optimization method. Portfolio optimization fueled by advanced data-driven models can reveal hidden value to an underwriting team. Such models can also predict with great accuracy how portfolios will perform in the face of micro or macro changes.

Repetitive and iterative sampling of the possible combinations can be carried out to create a narrowed down set of best solutions from an extremely large pool of portfolio options. This is how the most optimal portfolio that maximizes profits and reduces risk liability, is chosen.

Reinsurance Outlook in India

The size of the Indian non-life market, which is more reinsurance intensive than life, is around $17.7B, of which nearly $4B is given out as reinsurance premium. Insurance products in India are mainly modeled around earthquakes and terrorism, with very few products covering floods. Mass retail sectors such as auto, health and small/medium property businesses are the least reinsurance dependant. As the industry continues to expand in the subcontinent, an AI-backed data-driven approach will prove to be the decisive leverage for reinsurers in the hunt for new opportunities beyond 2020.

Also read – Why InsurTech beyond 2020 will be different

In 1997, the world watched in awe as IBM’s Deep Blue, a machine designed to play chess, defeated world champion Garry Kasparov. This moment wasn’t just a milestone for technology; it was a profound demonstration of data’s potential. Deep Blue analyzed millions of structured moves to anticipate outcomes. But imagine if it had access to unstructured data—Kasparov’s interviews, emotions, and instinctive reactions. Would the game have unfolded differently?

This historic clash mirrors today’s challenge in data architectures: leveraging structured, unstructured, and hybrid data systems to stay ahead. Let’s explore the nuances between Data Warehouses, Data Lakes, and Data Lakehouses—and uncover how they empower organizations to make game-changing decisions.

Deep Blue’s triumph was rooted in its ability to process structured data—moves on the chessboard, sequences of play, and pre-defined rules. Similarly, in the business world, structured data forms the backbone of decision-making. Customer transaction histories, financial ledgers, and inventory records are the “chess moves” of enterprises, neatly organized into rows and columns, ready for analysis. But as businesses grew, so did their need for a system that could not only store this structured data but also transform it into actionable insights efficiently. This need birthed the data warehouse.

Why was Data Warehouse the Best Move on the Board?

Data warehouses act as the strategic command centers for enterprises. By employing a schema-on-write approach, they ensure data is cleaned, validated, and formatted before storage. This guarantees high accuracy and consistency, making them indispensable for industries like finance and healthcare. For instance, global banks rely on data warehouses to calculate real-time risk assessments or detect fraud—a necessity when billions of transactions are processed daily, tools like Amazon Redshift, Snowflake Data Warehouse, and Azure Data Warehouse are vital. Similarly, hospitals use them to streamline patient care by integrating records, billing, and treatment plans into unified dashboards.

The impact is evident: according to a report by Global Market Insights, the global data warehouse market is projected to reach $30.4 billion by 2025, driven by the growing demand for business intelligence and real-time analytics. Yet, much like Deep Blue’s limitations in analyzing Kasparov’s emotional state, data warehouses face challenges when encountering data that doesn’t fit neatly into predefined schemas.

The question remains—what happens when businesses need to explore data outside these structured confines? The next evolution takes us to the flexible and expansive realm of data lakes, designed to embrace unstructured chaos.

The True Depth of Data Lakes

While structured data lays the foundation for traditional analytics, the modern business environment is far more complex, organizations today recognize the untapped potential in unstructured and semi-structured data. Social media conversations, customer reviews, IoT sensor feeds, audio recordings, and video content—these are the modern equivalents of Kasparov’s instinctive reactions and emotional expressions. They hold valuable insights but exist in forms that defy the rigid schemas of data warehouses.

Data lake is the system designed to embrace this chaos. Unlike warehouses, which demand structure upfront, data lakes operate on a schema-on-read approach, storing raw data in its native format until it’s needed for analysis. This flexibility makes data lakes ideal for capturing unstructured and semi-structured information. For example, Netflix uses data lakes to ingest billions of daily streaming logs, combining semi-structured metadata with unstructured viewing behaviors to deliver hyper-personalized recommendations. Similarly, Tesla stores vast amounts of raw sensor data from its autonomous vehicles in data lakes to train machine learning models.

However, this openness comes with challenges. Without proper governance, data lakes risk devolving into “data swamps,” where valuable insights are buried under poorly cataloged, duplicated, or irrelevant information. Forrester analysts estimate that 60%-73% of enterprise data goes unused for analytics, highlighting the governance gap in traditional lake implementations.

Is the Data Lakehouse the Best of Both Worlds?

This gap gave rise to the data lakehouse, a hybrid approach that marries the flexibility of data lakes with the structure and governance of warehouses. The lakehouse supports both structured and unstructured data, enabling real-time querying for business intelligence (BI) while also accommodating AI/ML workloads. Tools like Databricks Lakehouse and Snowflake Lakehouse integrate features like ACID transactions and unified metadata layers, ensuring data remains clean, compliant, and accessible.

Retailers, for instance, use lakehouses to analyze customer behavior in real time while simultaneously training AI models for predictive recommendations. Streaming services like Disney+ integrate structured subscriber data with unstructured viewing habits, enhancing personalization and engagement. In manufacturing, lakehouses process vast IoT sensor data alongside operational records, predicting maintenance needs and reducing downtime. According to a report by Databricks, organizations implementing lakehouse architectures have achieved up to 40% cost reductions and accelerated insights, proving their value as a future-ready data solution.

As businesses navigate this evolving data ecosystem, the choice between these architectures depends on their unique needs. Below is a comparison table highlighting the key attributes of data warehouses, data lakes, and data lakehouses:

Feature	Data Warehouse	Data Lake	Data Lakehouse
Data Type	Structured	Structured, Semi-Structured, Unstructured	Both
Schema Approach	Schema-on-Write	Schema-on-Read	Both
Query Performance	Optimized for BI	Slower; requires specialized tools	High performance for both BI and AI
Accessibility	Easy for analysts with SQL tools	Requires technical expertise	Accessible to both analysts and data scientists
Cost Efficiency	High	Low	Moderate
Scalability	Limited	High	High
Governance	Strong	Weak	Strong
Use Cases	BI, Compliance	AI/ML, Data Exploration	Real-Time Analytics, Unified Workloads
Best Fit For	Finance, Healthcare	Media, IoT, Research	Retail, E-commerce, Multi-Industry

Conclusion

The interplay between data warehouses, data lakes, and data lakehouses is a tale of adaptation and convergence. Just as IBM’s Deep Blue showcased the power of structured data but left questions about unstructured insights, businesses today must decide how to harness the vast potential of their data. From tools like Azure Data Lake, Amazon Redshift, and Snowflake Data Warehouse to advanced platforms like Databricks Lakehouse, the possibilities are limitless.

Ultimately, the path forward depends on an organization’s specific goals—whether optimizing BI, exploring AI/ML, or achieving unified analytics. The synergy of data engineering, data analytics, and database activity monitoring ensures that insights are not just generated but are actionable. To accelerate AI transformation journeys for evolving organizations, leveraging cutting-edge platforms like Snowflake combined with deep expertise is crucial.

At Mantra Labs, we specialize in crafting tailored data science and engineering solutions that empower businesses to achieve their analytics goals. Our experience with platforms like Snowflake and our deep domain expertise makes us the ideal partner for driving data-driven innovation and unlocking the next wave of growth for your enterprise.

AI Use Cases for Data-driven Reinsurers