Quantum Computing in Insurance: Opportunities and Threats

Large-scale quantum computing may still be a decade or more away, but already presents challenges to the insurance industry today. Preparation to meet these – as well as to reap the enormous benefits quantum computing will deliver – needs to begin now.

These were the key points to arise from an expert webinar jointly held on 7 October 2021 by the Sydney Quantum Academy (SQA) and Insurtech Australia, a non-profit member association of insurers, start-ups, and investors.

“We would need to wait at least five or maybe 10 years to really be able to crack RSA [encryption] with quantum computers,” said Dr Marika Kieferova, a Research Fellow at the Centre for Quantum Software and Information at the University of Technology Sydney (UTS) and a member of SQA’s Technical Advisory Committee. "But this doesn’t mean you have the comfort of waiting five or 10 years.”

If a cyber-attacker gains access to encrypted insurance customer or industry data today, it can sit on that trove of information until quantum computing is advanced enough to crack it. “This is an attack known as ‘Harvest Now, Decrypt Later’. Even though it will probably take really several years until this becomes an imminent threat, it is important to start preparing for the advent of quantum computers,” she added.

Marcello Negro, a principal of Finity Consulting, an actuarial strategic analytics firm, agreed. “Insurers need to think about it, both for their own data as well as the data of the companies that they insure. That is a real challenge for the industry. They have a fight on two fronts – both protecting themselves and their own data, as well as understanding this emerging risk and what that means for the insurance that they offer.

“That’s a risk that could affect multiple sectors and multiple insurance policies. So, we need to start thinking about quantum encryption algorithms and improving our security.” While changing security infrastructure cannot happen overnight, insurers will need to be aware of the emerging paradigms and prepare for them, “working through these risks and what they’re going to do to mitigate them.”

Considered esoteric only a decade ago, quantum computing is now a hive of corporate and government activity. Some US$675 million in equity has flowed into quantum computing in 2020, with more than US$800 million forecast for 2021, according to the Boston Consulting Group.

While quantum computing is unlikely to replace 'classical' computing, it will be indispensable in problems where even ultrafast high-performance computers cannot solve problems – either in a reasonable time, or possibly ever. These include dynamic portfolio optimisation, such as Monte Carlo simulations, which model the probability of different outcomes based on random variables; a technique used to understand the impact of risk and uncertainty in prediction and forecasting.

“Just about every major corporation on the planet has research into quantum computing happening,” said UTS’s Dr Simon Devitt, who is also the managing director and co-founder of H-BAR quantum computing consultancy. “This includes the big companies in the United States and China, while the startup sector has exploded. The three main hardware companies are all now valued over a billion dollars each.”

Some, like IBM and Microsoft, have been invested since 2014, and China recently committed US$10 billion to the wider quantum technologies field, he said. “This has really moved beyond what was very much a university-driven research project, with only a handful of players, into something that’s now much more market-driven and government-driven.”

The opportunities offered by quantum computing is what attracts all the investment. And some of these will be key to the insurance industry, said Finity’s Negro. “Areas in the insurance value chain that involve doing really difficult and time-consuming calculations could benefit from quantum computation such as simulating what a catastrophe event would do across a portfolio of risks, then aggregating that up under different scenarios.”

He could also see quantum computing being valuable for “improving the speed, accuracy and fidelity of weather simulations. I can see property insurers wanting to know that information, and particularly re-insurers. For pricing re-insurance contracts, in particular, that's going to be a big help.”

Harnessing the opportunities offered by quantum computing will require collaboration between industry and researchers, said UTS’s Devitt. “Whether it’s insurance or finance, people ask, ‘Well, what can we use it for specifically?’ To know that, we need collaborations. We need to understand what you guys do and how you do it.

“For example, if you are talking about some modelling about catastrophic scenarios – okay, how is that modelling taking place? Not in an abstract high-level description, but what is the nitty gritty? What are the line calls in your simulations that are taking up the most time? If you’re spinning up a thousand calls and running them for 36 or 48 hours, what part of that algorithm is taking up all that workload? Once we start better understanding that, we can start tackling these issues from the quantum side.”

Professor Peter Turner, SQA’s CEO, agreed, and urged insurers to partner with SQA to prepare for the coming age of quantum computing including by investing in talent and engaging with researchers. “SQA represents one of the largest concentrations of quantum experts and expertise in the world. We can connect industry with this community and emerging talent to explore potential use cases.”

Whether it’s managing risk better, searching for cost efficiencies created by increased regulatory burdens, keeping an edge over the competition, or even the challenge of creating hyper-personalised offerings to customers, quantum computing will eventually play a major role in the insurance industry. As UTS’s Kieferova stressed, “There is a real urgency to prepare for the inevitability of quantum computing.”.

Author: Wilson da Silva | 14 October 2021