Two Sigma Insurance Quantified Has Brought Sophisticated Data Analysis To Underwriting

Two Sigma, a New York-based hedge fund that uses sophisticated technology, has taken its analytical skills into insurance underwriting with Two Sigma Insurance Quantified.

The company is scientifically driven in its approach, said Brian Modesitt, the insurance tech company’s CEO. It entered the insurance software space five years ago and developed a platform with AIG and Hamilton Insurance, which it sold last year to Coalition, an insurtech company with a focus on commercial cyber coverage.

Two Sigma is known for its data science and analytics.

“Now they are bringing that technology and insight to bear on the insurance industry,” the company said in an interview. Two Sigma IQ plans to use data to improve the underwriting process, starting with commercial trucking, “said Modesitt.

In the past, an underwriter might get a list of trucks in a fleet, probably in a PDF which would require error-prone manual entry. It was taking so much time to write the policy that they were spending less time evaluating the risk and digging into the things that were problematic. Now with VIN numbers, an underwriter can quickly get information on each vehicle, making more rapid decisioning on underwriting, which allows more time to spend with a broker to win business. Managing data also allows the carrier to undertake historical reviews of the business to understand losses and catch mistakes.

“Mistakes might be small but when they go for a number of years they balloon into giant problems. We can capture all that.”

An insurance company may have had all that information in the past, but sifting through it to identify issues could take six months, he added.

“When the data is well organized we can do that instantly. It’s all about organizing data and delivering that data to people at the right time with the right intelligence to make faster, better decisions,” said Modesitt.

Although data scientists are supposed to be the stars of financial analysis, often they spend much of their time in the distinctly unglamorous work of assembling data from disparate data stores and normalizing it. Two Sigma’s SubmissionIQ “collects, organizes and enriches submissions, feeding the underwriting workflow with comprehensive risk and performance insights to prioritize and route submissions, review individual risks and proactively manage production.”

Jeff Goldberg, head of insurance at Aite-Novarica Group, said it is part of a new generation of underwriting tools.

“The past generation of underwriting systems have really been case management systems, focused on rules, to-do lists, communication, and note taking. The new evolution of underwriting workbenches focus on intelligent decision making, process automation, risk modeling, and smart data aggregation. Essentially a data-focused solution for insurers rather than a process-focused solution, he said.”

“Because the insurance industry is so form-driven, it’s largely built around structured data,” he added. “So you’ve got a ton of technology right now focused on ‘extract/ingest’ from forms. Meaning: can we get the fields from a PDF of a policy submission form converted into digital data in a structured database. There are a lot of legacy systems that have trouble connecting to modern systems and insurers are using RPA to migrate fields from one system to another.”

The industry is also seeing a lot of new, less structured data emerge, he added. That might include data hidden in a broker’s email.

“But some of it is really new types of data that are not easily processed in traditional ways. The most obvious example of this is vehicle driving data from telematics, but any IoT initiative or drone project is going to create lots and lots of new data that insurers aren’t good at handling.”

Two Sigma was founded in 2001 as a quantitative investment manager so it has lots of experience with data. With more than $60 billion in assets under management it also provides tremendous financial backing to TSIQ,” said Modesitt.

That financial platform differentiates it from some of the other startups in insurance tech.

“There is a shakeout coming within the insurance technology space,” Modesitt added. “We think many will run out of funding and a few will be acquired. Two Sigma Insurance Quantified continues to build partnerships and alliances to support the industry. We are open to making acquisitions that add value to our business.”

Paul Rowady, director of research at Alphacution Research Conservatory, LLC, looks to Omaha for an example of investing in insurance.

“If you think about what Warren Buffet and Berkshire Hathaway have done in insurance, then perhaps Two Sigma’s interest in developing an insurance underwriting engine could be based on their assessment that there is substantial capacity in this space to deploy capital.

“Two Sigma has grown to be one of the leading trading and investment organizations in the global asset management ecosystem,” Rowady’s report said.