Arowana helps insurers improve their risk selection and pricing by incorporating behavioural economic theory and machine learning algorithms into their models.
The company was founded by Brigitte Small (CEO) who worked at Admiral and Farid Tejani (CTO) who has a background in big-data and banking technology. Their hypothesis is that the behavioural science and algorithmic risk selection techniques used to trade financial products could be applied more widely in insurance.
Arowana’s current target partners are personal lines underwriters who suspect that their algorithms decline profitable risks. Arowana helps the underwriter find “smallish pockets of risk that are profitable” or help with “better pricing and distribution” by combining an insurer dataset with much more public and private data. According to the company, data-driven risk selection has already been shown to consistently outperform average loss ratios by 8-10% (nb. not percentage points).
Arowana is currently working with an insurance partner to test new risk models which are expected to result in loss ratios of 20% below market average.
The firm intends to apply their algorithms more broadly in the long run. Farid provides two examples:
European MGA: Arowana originally tried to launch as a motor MGA in Italy but subsequently pivoted to being a vendor to insurers. They believe there is a continued opportunity to use their differentiated risk selection capabilities to underwrite motor business using their Maltese license. They have built their own customer portal.
Trust metrics platform for consumers: This service allows people in the sharing economy (e.g., freelancers) to understand their “trust capital” (or perhaps reputation score). The company are considering this as a lead generator for insurance in that segment (e.g., professional indemnity).
They are so far self-funded and are looking for seed capital and partnerships with insurers to try out their algorithms on new datasets.
The Oxbow Partners view
It’s too early to say whether Arowana will make waves and we’ve not seen enough specific use cases coming out of the company to date. The loss ratio improvement Arowana is generating is significantly below the numbers Cytora is claiming (Bitesize profile). However, we urge caution on comparisons because a) portfolios used for POCs are likely to have different profiles and b) early POCs may not be representative of broader performance.
The point that makes Arowana interesting for us is their focus on behavioural science. This is a central part of Lemonade’s proposition (Oxbow Partners coverage); the US business have hired a well-known academic, Dan Ariely, to develop their proposition in this area. There’s certainly an opportunity to use the discipline to innovate around the customer experience.
Chris leads engagements across strategy and transformation, focusing most of his time on global reinsurance and UK & Ireland retail insurance.
Chris started his career at Munich Re where he was a D&O underwriter. During this time, he gained his ACII qualification. He then moved into consulting, where he has spent 20 years advising (re)insurance management teams around the world on topics including strategy development, operating model redesign, governance optimisation, underwriting transformation and innovation. Chris lives in London and spends a lot of his time with clients in Bermuda and Continental Europe.
Chris frequently authors Oxbow Partners papers and articles. He was the lead author on our InsurTech Impact 25 series. He is a dual British and Austrian citizen and speaks fluent German.