Quantum computers could change the insurance industry

Since the 1990s, scientists around the world have been working on the development of quantum computers, whose computing power will dwarf anything known to date. In mid-June 2021, the first German quantum computer went into operation. An important milestone in new dimensions of IT - and thus also in the insurance industry.

The short history of quantum computing is closely intertwined with quantum physics. As early as the 1980s, physicists were finding that simulations they had calculated on classical computers were failing miserably. This led to the realization that a correct simulation of quantum mechanics would require a computer that could work on the basis of quantum physics. This was the birth of the theoretical quantum computer.

Bye Bits, hallo Qubits
The processors of all computers used so far are based at their core on two switching states in their transistors: one charge is present or absent: the principle of 0 and 1, the state that each bit occupies. Even schoolchildren know that by now. Quantum computers do not work on the basis of such electrical voltages, but rely on quantum mechanical states.

And this principle challenges our imagination already in the basic theories. This is because a quantum computer also represents information in binary form; however, a unit of information here can also be the result of the superposition of states. This feature distinguishes them from classical bits, which is why they are given the special name qubit in quantum computers.

The resulting consequences, however, are of more interest to the designers of quantum computers and developers who will deal with algorithms. In this post, it is sufficient to recognize that the quantum mechanical principle of novel computers can solve certain problems in computer science more efficiently and quickly.

Faster forecasting with greater detail
Of interest to the insurance industry is the fact that quantum computers can more quickly handle precisely those computational tasks that form the basis for solving actuarial problems. This opens up, at least in theory, completely new possibilities in the creation of forecasts and analyses.

One example that scientists like to cite, which impressively explains the way quantum computers work, is devoted to the everyday phenomenon of traffic jams. Despite all the forecasts, they cannot be avoided at present. On the one hand, this is due to the enormous amount of data that would have to be taken into account - namely the movements of all vehicles - and too many variables. As is well known, the tapping of the brake on the motorway by just one participant is enough to potentially lead to a traffic jam. Quantum computers could handle such amounts of data and use this information to run so many simulations that traffic would be rerouted in time.

Transferred to the insurance industry: Potential risks could be identified at an early stage by calculation and thus losses avoided. The analyses required for the development of new products and services could be calculated faster and more accurately than was previously possible. Extensive simulations of events on the financial markets provide a realistic assessment of the future situation of a company.

At least that's the theory, because there is still a lack of practical examples. And quantum computers will also go through the usual "hype cycle" of other innovations. There is therefore a danger that the short-term effects of the technology will be overestimated.

Quantum computing also raises questions
As with many technical developments, the first critical and cautionary voices have been raised about quantum computing. This is because the enormous computing power also means that protection and encryption measures that were previously considered almost impossible to overcome could be cracked. Even technologies such as blockchain will no longer be insurmountable, as the Association of German Beanks recently pointed out. Therefore, a credit institution should make sure to become "quantum resilient" in time. A requirement that also applies to the insurance industry.

Quantum computers are no longer science fiction, yet development is still in its early stages. For the insurance industry, the new technology promises many useful applications, if the theories and expectations are fulfilled. In any case, it is worthwhile to continue to actively monitor the topic so as not to miss the start.

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