How quantum computing could impact the world of insurance

author by Bernard Cosgrave time Sep 14, 2022

A recent report from Swiss Re concluded that quantum computing (QC) could offer significant benefits for (re)insurance carriers, but, in the more immediate future, could also pose significant threats. It’s not hard to see why. In the following blog, we look at how quantum computing could impact the world of insurance and reinsurance.

There are high hopes for the transformative impact quantum computing could have on organisations’ ability to process and analyse previously unimaginable amounts of data at previously unimaginable speeds. Major corporations like IBM and Google have made impressive strides in moving quantum computing along the path from theoretical possibility to commercial reality.

As with any dramatic increase in computational power, the coming quantum computing revolution is likely to have both positive and negative impacts across broad swaths of human activity. P&C insurers need to keep themselves up to speed with the latest developments - with a view to assessing both opportunities and threats. But before we come on to that, let’s take a step back and look at what QC is and what possibilities it conjures up.

By harnessing some of the distinctly unusual properties of quantum mechanics, like superposition and entanglement, big, stable quantum computers could perform some types of calculations - like those involved in running complex simulations - massively faster than current ‘classical’ computers. As and when such machines become more generally commercially available - which some think could happen in as little as ten years’ time - they could offer huge benefits for everything from scientific and medical research to finance and insurance.

While classical computers operate with humble bits which unambiguously represent either a 1 or a 0, quantum computers employ quantum bits, or qubits, which simultaneously represent both 1 and 0 - or a combination of the two. This is known as superposition. It is achieved through quantum entanglement, the phenomenon whereby quantum elements form a special connection which means that a change in the state of one affects the state of the other - regardless of the distance between them.

Entangled qubits exponentially increase the number of states represented, enabling a quantum computer to explore a vast array of possibilities at once - and to run parallel calculations on a scale that classical computers cannot practicably match.

The simultaneous multiplicity of states achieved by a given number of qubits in a quantum computer can be modelled using a classical computer. The feasibility of so doing, however, recedes with the same remorseless logic as that of placing double the number of grains of rice on each consecutive square of a chess board. It takes only two traditional logical bits to model a computer with one qubit, a mere four to model two qubits, eight to model three. But modelling a quantum computer with just 54 bits would require around 18 quadrillion bits, from which point on even the most powerful of current supercomputers would have no option but to bow out gracefully.

The prospect of creating quantum computers with thousands of qubits -compared with the totals in the low hundreds so far achieved - has raised high expectations in the world of business, and attracted significant investment in the nascent technology. Although much work has still to be done, particularly in terms of coaxing stable performance out of current quantum computers, their vast potential across a wide range of practical applications is too compelling to ignore.

Big (re)insurers could clearly benefit from quantum computers’ massively augmented processing power, near-instantaneous data pattern recognition and advanced machine learning capabilities. Simulation and modelling are fundamentally important to the business of insurance. The quantum computing revolution creates the prospect that activities like risk pricing could be accomplished at a speed, and with a level of precision, that could be fundamentally transformative. There could be parallel benefits in terms of how effectively insurers are able to optimise their investments over time.

However, the intense interest generated by quantum computers also raises the spectre of targeted attacks on quantum research and development organisations - potentially triggering both cyber and property insurance losses - and also a broader challenge to data security. Quantum computing poses a huge threat to current IT security protocols. Hackers using quantum computers could potentially break the standard encryption keys used in online communications and data transfer.

The quantum revolution radically challenges many of the tenets of current encryption practice and could pose a serious threat to financial market stability. Lurking in the background is the prospect of well-funded state-backed cyber-attacks compromising insurance and other financial services organisations and turning them into early casualties of the quantum computing revolution before they have a chance to profit from it.

If the standard encryption keys for internet communication, digital banking, and electronic commerce were to be hacked, we would likely see a slew of cyber insurance and business interruption claims. As a minimum, this threat could prompt a major review of cyber insurance policy wordings. At worst, the long-term viability of the entire cyber insurance market could be brought into question.

All of which underlines the need for insurance carriers - and those they insure - to do everything they can to prepare themselves to adopt quantum-computing-proof data encryption practices. Achieving this will not come cheap - but the alternative, in the none too distant future - could be far less palatable. The key for now is to carry on paying close attention to developments and be prepared for radically different things to come. The pace of change could soon become very challenging indeed.

As you would expect, DOCOsoft is keeping a close eye on developments in the quantum computing space and will be working towards protecting our clients from the potential risks associated with QC and exploring the benefits wherever opportunities to do so arise. We’ll be reporting on future significant developments in future blog posts.

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