Two Sigma Joins AIG & Hamilton Insurance to Offer Small Businesses Coverage in Minutes

The firm is joining with American International Group Inc. and Hamilton Insurance Group Ltd. to provide an automated, online analytical system to issue policies in minutes to smaller businesses like clothing shops, beauty parlors and medical offices.

Under the arrangement, agents will go online and type in the barest of information about their client-business name and address and a few other details-and algorithms will begin filling in information about the prospective policyholder. That's in contrast to longstanding practices in which insurers often ask dozens of questions for the process to get started.

For Two Sigma, it's the first significant attempt to branch out to a new business from investing. The firm is known as one of the most successful "quants," which are quantitative hedge funds that use computer systems to trawl data, make predictions and trade automatically in the markets.

Founded in 2001 by a computer scientist, David Siegel, and a mathematician, John Overdeck, who had both worked in hedge funds in the past, it increasingly is casting itself as the Google Inc. of Wall Street, a technology company that can take its data-crunching skills to task on a variety of finance and economics problems.

Last October, it hired Alfred Spector, Google's former vice president of research and special initiatives, to become its chief technology officer.

Two Sigma thinks of itself as a company that focuses on "problems involving risk and economic activity," rather than a hedge fund, Mr. Siegel said. The insurance deal is its first major effort outside of the markets, but he said over time it plans to target other opportunities where it can leverage those skills.

Small and medium-size business insurance is a "gigantic market" and a "data science" problem, he said.

"It's not just about taking manual processes and automating them," Mr. Siegel said. "By using our data science, we think we can do a better job of underwriting."

The algorithms being used by the Two Sigma group's venture, called Attune, will draw on detail that Two Sigma has obtained from vendors who collect public records and other sources that can tell AIG and Hamilton what they believe they need to know to understand the risk to be insured.

That could include detail about square footage and construction features of the business premises, changes to mechanical systems over the years as outlined in government building permits, proximity to fire hydrants and sources of flooding, as well as code violations, other regulatory run-ins and legal entanglements, the firms said.

In most instances, the algorithms would be expected to assess the risk and determine a policy's price almost instantaneously.

The effort to speed up the issuance of policies isn't the first. In February, Warren Buffett's Berkshire Hathaway Inc. launched the online coveryourbusiness.com, where business owners can go directly to obtain policies.

"Every person is buying more and more online, even paper towels, so why not insurance?" said Rakesh Gupta, the Berkshire initiative's chief operating officer. Believing simplicity for the applicant is key, the Berkshire team is continuing to whittle down the number of questions traditionally asked by "questioning all the questions."

AIG Chief Executive Peter Hancock said he was attracted to the partnership by Two Sigma's data-analysis record. They have been "learning the hard lessons of what analytics can and can't do," he said.

Global insurance conglomerate AIG is well-known for covering complex risks at big companies. While it hasn't focused on basic property and liability policies for small enterprises, it does provide them workers-compensation insurance and specialized coverage to protect against such things as cyberrisk.

Bermuda-based Hamilton was established in late 2013 by a group of investors, led by insurance-industry veteran Brian Duperreault and including principals of Two Sigma. Their aim: applying powerful computing to underwriting and pricing insurance. Mr. Duperreault previously ran insurance brokerage and benefits firm Marsh & McLennan Cos. and the property-casualty insurer now known as Chubb Ltd. , and earlier was a senior executive at AIG.

As Hamilton's chairman and CEO, Mr. Duperreault reached out to Mr. Hancock early this year because of Mr. Hancock's interest in data science and AIG's decades of underwriting and claims experience. "I thought it could be a very interesting combination," Mr. Duperreault said. "We would take the technology we have and use their data and come up with something even better."

Terms of the deal aren't being publicly disclosed but Mr. Duperreault said: "We're all equal partners."