How twins can help you develop a digital sixth sense

Why is Minecraft so successful?

Because it’s great to have a separate world where you can go and play God for a while. You can make things, destroy things, create catastrophes, cut off supplies… and then build it all back up again. And you can see all this happening in real time.

Digital twins have many of the same attributes. Although admittedly less of a cult following.

In our partnership with Microsoft we are building ‘risk digital twins’ – a virtual world we supply with big data and AI capabilities to simulate different scenarios. We call it our Digital Market Centre. And we’re using this tool to help us solve some of the biggest problems faced by businesses and society.

Simulations are nothing new, of course. But digital twins allow a speed and depth that enables us to take the concept to new places. They allow us to look at interconnected risks, and how these risks evolve in different scenarios. Right here and now.

A whole range of end users will benefit from this tech. Obviously, we are offering our insurance market access. But it’s not just an underwriting tool on steroids. With it we have created data-driven tools for finance ministers; we have helped large companies with new ways of viewing supply-chain risk; and we have helped the mayor of a disaster-prone city.

The secret is in the way we are using the underlying risk knowledge.

Better connected

Here’s an example of how this twin technology can be applied in real life. We start with our ‘ship risk digital twin’, which is monitoring a ship sailing from the Far East to Genoa in Italy.

The twin takes real data from all the ship’s systems. At some point the twin signals that the ship engine requires maintenance to avoid a major engine breakdown. The captain therefore decides to change route to stop for a quick repair. All this will take a couple of days.

This is a simple – but extremely cost-effective – intervention. Machinery breakdown claims for cargo ships come in at around USD 600k per claim. So, on a global scale, this represents massive savings for both ship owners and their insurers.

Now let’s take the example further. Our ship risk digital twin forecasts that, due to the new schedule, bad weather on route will delay the ship by five days. Our system can make the connections – and knows that on the ship there are parts for an Italian company building brakes for a European car manufacturer.

It is connected to the manufacturing risk digital twin, which notifies the brake manufacturer that its material will be delayed by five days. And, adding on the time for production, also notifies the car manufacturer that its brakes won’t arrive for eight days.

The twins are also able to highlight the best options to deal with the situation, minimise disruption and leverage all the insurance financial protections and services in place.

So, you can see how our system combines data from multiple sources and is able to predict outcomes and drive actions. It's no giant leap to see how business interruption insurance would plug in. It’s a win-win set-up: it makes life easier for the end consumer of that insurance and also means we can extract data to make the underwriting more accurate.

The brave next steps

Our projections are powerful. It’s not just risk from weather and operations we can manage, but also natural catastrophes and pandemics.

But there are also a few further important implications behind this concept.

Firstly, there is the massive step change in the way we are packaging risk knowledge and integrating insurance into the larger risk-management value chain. It means we are opening up a reinsurer’s risk data beyond the traditional customer base. In addition to the original insurance client in our example above, there is also the shipping company and the manufacturers.

As it stands right now, we could build solutions for any of the individual problems mentioned above. But we tend to do this in isolation – separate solutions for the ship owner’s ship and the car manufacturer’s production line. Each of them in turn buys individual risk management bolt-ons – external data, remote sensing systems, insurance policies, etc.

Our new Digital Market Centre brings together all of these elements, giving deep insights across a vast interconnected system. It’s not so much risk management as a digital sixth sense, enabling companies, governments and organisations to deliver on their plans and manage complex risks.

This is the first step in the transformation to a digital market. By uniting multiple aspects, we are able to give a more complete big-picture view, and fundamentally shift the existing parameters. There is much more opportunity to unlock as the industry starts to realise the true impact this offers.

Planning for disaster

Despite the Digital Market Centre only being announced in March this year, projects are already well under way in areas including connected vehicles, supply chain and disaster resilience. This latter group is particularly interesting and complex.

Governments all face the risk of a protection gap following a disaster – that is to say the difference between insured losses and total economic losses. Not being able to account for this total economic loss is one of the biggest blind spots when looking at resilience. It is also very difficult to put a price tag on. How do you price the lost value of lower consumer spending? How do you insure a drop in GDP? Wouldn’t it have been great for governments to have had this information as they were deliberating how to react to the COVID-19 pandemic?

We hope our Disaster Resilience Partnership will be able to tackle exactly this problem in the future. It means our partners could run highly sophisticated, AI-driven simulations to better understand interconnected risks across whole countries.

It means we can eliminate blind spots and be better prepared when disasters do strike. It enables us to simulate the consequences of our decisions. And it makes rescue, recovery and reconstruction after the event much faster.

Think of the ground-breaking initial reef insurance protection in Quintana Roo, Mexico. Yes, of course the most important thing is to protect the coral reef to maintain a healthy sustainable environment. But looking at the system holistically, we know that reefs are essential to protect beaches and prevent sand from being washed away. Beach sand is the single most important asset to drive the local tourism industry. And tourism is core to the socio-economic well-being of the region. Being able to see this bigger picture means the funds get released to protect the reef in the first place.

And that’s the key: having the power to understand the full risk and take actions where they will make the most impact. Whether it’s remote sensing on a ship and the knock-on impact to production lines, or simply ensuring there’s beautiful sand to lie on when we can enjoy a summer holiday.