Profiles & Interviews

Interview: The role of AI in climate change and insurance

Icebreaker One is a non-partisan not-for-profit organisation, funded by UK Research & Innovation (UKRI), which is working to deliver a net-zero future. Both bodies aim to advance AI’s role in the insurance sector by commissioning research and funding projects that will ultimately help achieve this goal.

UKRI has funded a project led by Icebreaker One, that will develop a new Standard for Environment, Risk and Insurance (SERI) to design, test and develop financial products.

Insurance Wire caught up with Gavin Starks, founder of Icebreaker One, to discuss the SERI project and the role of AI in climate change and insurance.

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What do you believe is the role of AI in regards to insurance and climate change?

The better use of good quality data to help inform predictive analysis, and looking at the kind of broader systems modelling, is now essential in our economic modelling and future modelling of systems.

The challenge for people is starting to use these tools in a way that’s going to be materially useful in giving us better insights into what the future might be.

But I’d say one of the big challenges is getting good quality data into those systems in the first place. To quote the old adage, “garbage in, garbage out”, if you train the model on the wrong input, then you’re not going to get the right outcomes.

What are the main goals of Icebreaker One’s SERI project?

We’re trying to create climate ready financial products. It’s a UKRI funded program and we’re trying to get better data into the systems. So there’s a number of different objectives there, including trying to encourage organisations to publish better quality data and reducing the friction in accessing the data in the first place.

A lot of the information that’s really material to impact is confidential. So how do we get access to what we call shared data? We’re looking at the trust framework, that’s going to be required for organisations to share better quality and more timely data with each other, so they can create climate ready financial products.

Those are products that help move the buyers of insurance, away from behaviours that have a negative impact, and towards things that drive us towards net zero.

Can you define exactly what a climate ready product is?

So there are two categories.

One is either things that help deliver net zero, so they actively push markets towards things that are net zero outcomes, rather than fossil fuel intensive businesses.

The second category is things that address the consequences of climate change. When you’re looking at the increase in weather events, how do you build in that kind of adaptation and resilience agendas?

How do we avoid emissions? What do we do with the consequences of the hazards that arise as a consequence of climate change?

How does the project identify new technologies that assess said products and what is its role in developing them further?

So there are a number of different strands here and I think this is where we see it’s not just a technology problem. There’s plenty of technology out there. It’s just not evenly distributed. There are three things that we think are critical to development.

One is policy innovation. One is product innovation. The other is open standards that help people share the underlying information. The way that we operate is we work very collaboratively, we’ve engaged with over 300 organisations in the last couple of years to really understand what their needs are. That brings together the insurance industry, policymakers, individual practitioners, and we identify the challenges that the insurance sector faces in their efforts to push things towards net zero.

One of the patterns that’s emerged from that has been that it’s relatively easy to look at the consequences. It’s much harder for people to really embody the “how do we avoid it in the first place” question.

What role has UKRI had in assisting the SERI project achieve its mission statement?

UKRI are funding us. It is a million pound program, split between UKRI and EIT Climate-KIC. It’s helped to convene a very diverse, multi disciplinary set of stakeholders. We’ve got Bird & Bird in there on the legal side, looking at data sharing contracts right the way through to systems modelling on the technology side.

It’s really about that joined up thinking. What public funding can do here, and what UKRI and the EIT’s climate funding has enabled us to do, is bring together an ecosystem that represents the whole market, rather than just a technology or an app.

We’re really looking at what piece of infrastructure is required here to address a systems wide challenge.

Does the project collaborate with any other green initiatives within the industry?

We’ve been trying to glue together the different initiatives out there, because I think all of them get to a point where we all realise data is central to all of this. I sit on a number of different boards. I sit on the special finance initiatives board that is led by Oxford University. Cambridge University and Cambridge Zero are part of our consortia.

We’ve got with the FCA and PRA this climate financial risk forum, which I sit on as well, that links into a whole range of different people in the ecosystem.

We’re just continuously trying to make sure we’re woven into and supportive of all the initiatives out there because our role as an independent nonprofit is to try and solve the collective action problem of data sharing.

That then enables everybody in that ecosystem to say, “now we can go and invent a new product, so we can improve the efficiency of existing products”. The partners we brought together around the SERI program, they’re not exclusive. If others want to join in, we welcome them with open arms.

What has been the industry response to the initiative?

Very positive. You can always gauge if people turn up. We’ve set out an objective to get the industry together to design and actually test these ideas.

So we actually have a weekly innovation sprint, where we’re churning through ideas on a continuous basis and have been doing this for the last eight months. This idea is to help the partners and take them out to market and say, “is this a product that survives contact with reality”?

I think the challenge here is that you get a lot of research projects that may invent great technologies, but they don’t survive contact with the market. So we’re very commercially focused in our approach, even though we’re a nonprofit.

What financial products has the project introduced to the market?

So we’re in the process of testing at the moment. The objective was to create some candidates by November, which we’ve done and now they’re taking them out to see what happens when we do that.

Having gone through many different ideas, one example of a product is a risk pooling initiative to attract investment to upgrade older renewable technologies, like onshore wind farms, and then we worked with technology operators to identify what the problem was.

The problem was it’s becoming much harder to insure older, more output wind farms and so therefore harder to attract investment. From there, we’ve spoken with brokers to validate the model. We’ve discovered that insurers are actually pulling out of that market. We developed a risk pool proposal to manage risk to insurers making sites more insurable, and therefore more investable, then you can upgrade the sites with more efficient technologies.

That’s just one example of several products that are going through the process right now to see if it’s a viable intervention.

What are Icebreaker One’s plans with the SERI project going into 2021?

The pandemic has catalysed our investment in this whole space. We’ve now got three major projects of which SERI is one. There’s another one called Project Cygnus, which is looking at how we do economic recovery from Covid-19 that is net zero.

They’re working across cities and regions, working with city planners, local authorities. The investment and insurance communities are really critical components of that.

In addition, we’ve got a third project called Open Energy, which is applying the principles of open banking to the energy sector. So we’re going to be rolling that out next year as well.

Combined, all of those really come together to look at how do we instrument the data flow. How do we make data sharing vastly more straight forward for people to engage with, and for organisations to trust? So we want to be accelerating our development next year.

We’ve been very fortunate to get to have the support of UKRI and EIT Climate-KIC. We’ve raised over £3m since April for these projects, so there’s a substantial investment and lots of industry leaning in.

We know data is a common problem. Nobody has the answer but we’re here to help navigate through that and be the icebreaker.

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