Last week, hyperexponential* announced the close of its Series B round, led by Battery Ventures. I am proud to be part of the deal team that sponsored the investment, which has a poignancy for me because of hx’s potential to transform the industry I love and know best: property-casualty insurance. Here’s what excites me about what they’re building.

Too often underappreciated, the global P&C insurance industry provides a vital social service: insulating people and businesses from the depredations of an uncertain world. Well-functioning markets for risk transfer serve at least three functions essential for economic growth and welfare.

First, insurance is a form of social savings. Fire, flood, drought, extreme storms and cyberterrorist attacks are terrible events that are improbable in the individual instance but become certainties in the aggregate over time. Insurers aggregate reserves in orderly fashion against losses that would otherwise be borne by the collective when disaster inevitably strikes.

Second, insurance is a form of risk capital, underwriting many forms of productive but risky activity without terror of loss. It is no coincidence that insurance in its current form dates back to the 18^th century, when commercial ocean transit was lucrative but vulnerable to devastating losses when cargo was lost to shipwreck or piracy. By syndicating the risk between participants and outside investors, people can undertake all the activities of a modern economy.

And third, insurance is an instrument of collective, market-based learning. Insurance rates express the true cost of driving vehicles, flying aircraft, hiring employees, operating businesses and building homes when potential losses are taken into account. While some level of loss is inevitable, we are not helpless recipients of adverse risk. We can build with safer materials, drive less distractedly, enforce industrial safety standards and affect many of the other parameters that drive the underlying level of risk. We have the P&C insurance industry to thank for quantifying the value of these improvements, sending the market signals that change behavior and making our lives immensely safer.

All of these benefits rely on a competency at the heart of insurance: the accurate pricing of risk. The discipline of actuarial science has been quantifying the correlations between risk factors and loss outcomes for centuries, long predating computers and AI. A multi-trillion-dollar industry grew up on the predictive power of these calculations.

Today this predictive power is more stressed than before. A recent example is the crisis in California’s $12 billion home insurance market, in which more than half of the insurers active in the state have stopped or severely limited new policies. The reason: wildfire losses far beyond anything predicted by once-reliable risk models. Similar issues are afflicting the Florida, Louisiana and Texas property insurance markets because of “once in a 100-years” storms happening much more frequently.

Meanwhile,  cyberterrorism incidence is creeping upwards in frequency and severity, with global losses estimated to bear $1 trillion per year — substantially more than is covered by cyberinsurance today. And to insure the new kinds of infrastructure being built for the future — e.g., very large solar arrays, telecom constellations in geostationary orbit — insurers will need to triangulate on underlying risks in other ways than using loss experience because such experience is, by definition, limited or non-existent.

Examples such as these reflect the importance of advancing the state-of-the-art in insurance pricing for a future that is not reliably like the past. New techniques include incorporating alternative and much larger data sets, applying machine-learning to find subtle predictive correlations and iterating on pricing models much more frequently. As insurers strive to evolve beyond the purely retrospective and loss-based approaches that are now losing their predictive power, the persona of the actuary is evolving in parallel — requiring new data management and programming skills to augment classical actuarial science.

Amrit Santhirasenan and Michael Johnson, two veteran actuaries of top insurance companies, exemplified this new persona. Co-founding hyperexponential in 2017, they developed a next-generation pricing platform so well-suited to the need that it earned adoption by sophisticated major insurers such as Convex, Aviva and Conduit Re in very rapid fashion. They achieved this traction — and profitability — while using only about $4 million in capital, reflecting a combination of operational discipline and product-market fit that is best-in-class not only for insurtech but for enterprise software startups overall.

My Guidewire* experience only heightens my admiration for what the hyperexponential team has achieved to date and my excitement for the opportunity ahead. After over twenty years of serving P&C insurers, I believe this enormous industry must grow even larger to meet the risk transfer needs of our future.

In order to do so efficiently and profitably, it will need a next-generation technology stack with much greater throughput and modeling precision than it has today.  I am confident hyperexponential will rapidly become an indispensable part of that new environment.