The footprint of artificial intelligence in the insurance industry has grown over the course of the past five years. For this issue the Risk Retention Reporter spoke with Anirudha Balasubramanian, founder and CEO of Tailshift, to discuss how artificial intelligence can be used in an underwriting capacity, with a focus on legacy risks and loss portfolio transfers. We also discussed barriers to the adoption of AI in the insurance industry and how AI will be able to make deals with smaller companies, formerly not financially viable, a realistic option.
Risk Retention Reporter: What gaps in the market drove you to form Tailshift?
Anirudha Balasubramanian: Three things. One is immense pain in casualty, especially in the past seven to 10 years, which continues to develop adversely. That’s created a need for capital solutions for non-latent risks like auto and certain classes of general liability. Increasingly these solutions are hybrid retrospective and prospective solutions.
Second, the legacy market has been challenged. Transactions are really time consuming. In terms of effort, there’s an extremely high failure rate, between 1 in 3 to 1 in 10 transactions actually succeed. And there’s a perception that small, which means sub $100 million dollars, or certainly sub $50 million deals are simply not worth it.
And three, there’s a huge amount of unstructured data and claims that fortuitously, has been recorded, but it’s completely unused, and its highly risk relevant. Gen AI has made that extremely tractable. These three things together constitute the gap that we saw in the market, and the combination of technology and market timing that are at the core of Tailshift.
Risk Retention Reporter: Do you currently work with any risk retention groups or is this a new market your team is looking to expand into?
Anirudha: It’s a market we’re keenly interested in, and we’re evaluating several transactions with RRGs. There are a couple of modalities or archetypes to those situations. One is fast growing risk retention groups that need surplus relief. So that might be a combination of a legacy solution with a go-forward quota share. We would also look at classic runoffs and exit solutions for investors. Finally, there are also balance sheet cleanups after a change in member composition that can split the history of the RRG into two epochs. We’re also very active in the broader captive space.
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