Revolutionizing Ratings within the Insurance Industry
RealRate is an independent rating agency that analyzes insurance companies by creating fully automated and explainable company ratings for customers and brokers. With the help of Explainable Artificial Intelligence (XAI), RealRate generates an interpretation of the companies’ financial strength in just two minutes.
Holger Bartel, CEO RealRate has been a keen player in the risk management and financial markets. He has been the brainchild behind the founding of several other startups too. Excerpts from an interview with Holger Bartel:
RealRate – The Story Behind
Holger recalled his days when he worked as an appointed actuary within the insurance industry. He says he had to explain the risk management strategies to the rating agencies, which perform the annual rating. “That was a highly cumbersome, expensive and timeconsuming interactive approach. And even worse, I understood that the agencies weren’t independent, being under pressure to produce a good rating in order to be commissioned again next year.” He wanted to design a much simpler and unbiased approach. “We used Explainable AI (XAI) that disclosed the causes and effects of financial strength. The approach was fair, interpretable ratings and had no black box. Thus, RealRate, the first rating agency based on artificial intelligence was born in 2016. After three years of developing the AI software we went live in late 2019, immediately winning our first customers.”
AI – The Most Important Tool
Artificial Intelligence played a crucial role in determining result-oriented ratings within RealRate. “RealRate offers explainable rating decisions aided by Artificial Intelligence systems. The valuation logic (the RealRate model) is implemented in order to enable a causal reasoning. Our software then generates an interpretation and a nice colored graph showing the real causes and effects of the company’s financial strength” said Holger. So, after just two minutes, the customer can interpret the company’s financial strength, instead of reading 200 pages of the business report.
The Holistic Insurance Approach
The company performs a holistic analysis of the insurers’ business model, instead of a simple weighting of key figures. “Classical ratings often just use a bunch of key ratios to derive at a rating. RealRate’s approach is to use a whole valuation model – starting from the basic input. Using only certified public balance sheet data, our model then steps by step computes relevant economic figures, finally resulting in the companies’ financial strength. The structure imposed by our expert model enables a holistic valuation and a causal explanation.”
RealRate helps to increase economic stability via fair and unbiased information, an area where rating agencies play an important role. “Our technology will avoid any conflict of interest, improving information and understanding and thus stabilizing the economy.” The company is looking to foray into the US market, which is a huge market, with many listed companies and highly standardized electronic annual business reports.
Regulation is increasing in the insurance industry as well as in the rating market. This also means that insurers have to further professionalize their risk management, strengthen their resilience, and build up trust. According to Holger, “RealRate offers independent and interpretable ratings for insurance companies. Insurers should use this independent statement to convince customers of their excellent financial position and to strengthen their brand.”
Future of Insurance Sector
In the current economic situation, interest rates have been pushed down by central banks worldwide which might help the banking industry, but it will poison the insurance industry in the long run. Holger said, “I therefore expect that especially some European pension and life insurers will leave the market. Probably this will be mainly realized my mergers and acquisitions, insurtechs instead, will play an increasingly important role.”
Being selected as one of the most promising German AI startups by Applied AI Initiative, to winning the PyTorch Artificial Intelligence Software Hackathon are a few of the recognitions the company has earned recently. RealRate’s innovative rating approach was also recently recognized by EU Business News titling it as “Most Innovative Fully-Transparent AI Financial Ratings Provider”. Holger plans to build upon this. “We aim at revolutionizing the ratings market, making ratings fast, fair and interpretable.”