Predicting the unpredictable: Suncorp’s model for climate risk wins the 2024 SAS Practice Prize

A new model that predicts the likelihood of severe, damage-causing weather events could set a new standard in insurance and help emergency services.

The impact of extreme weather events due to climate change is being felt across industries, particularly insurance – but there is still debate about how significant the impact is, and how specifically it is felt.

That’s why a team from Suncorp consisting of Dr Rhys Whitley, Lisa Ye, Tatiana Potemina and Dr Nina Ridder set out to develop a model that uses data, advanced analytics and artificial intelligence to translate these weather-related events into an insurance context.

The model will enable Suncorp to proactively adjust the pricing of natural hazard insurance, ensuring their policies accurately reflect the evolving climate risks across Australia and New Zealand, and set a new standard for the insurance industry in climate-informed underwriting and risk management.

“Climate change is such a big topic in the insurance industry, but there is still a lot of debate and a lot of uncertainty around the topic. We wanted to develop a data-driven approach to try and answer some of these questions around its true impact,” Dr Whitley said.

The Suncorp team’s innovation won the $10,000 SAS Practice Prize at the Melbourne Business Analytics Conference last month, impressing a judging panel featuring executives from SAS, Lineage and Accenture as well as academic experts from the Stanford Graduate School of Business, Cambridge Judge Business School and Johns Hopkins Carey Business School.

With rising insurance premiums becoming a concern due to cost-of-living pressures being felt by many Australians in recent months, the Suncorp team said they wanted to gain data-driven insights into the role that climate change was playing.

“We wanted to get a more data-focused understanding of some of the historical trends we’ve seen and get a point to anchor in some of these conversations we are having with reinsurers,” Dr Whitley said.

“When statements are made that climate change is driving up premiums, we can now return to our analysis and test that.”

They found that the impact wasn’t universal across the country.

“It’s not necessarily always worse, and it is not necessarily everywhere. It is often specific pockets,” Ms Ye said.

Marrying science and insurance

One of the most important parts of the project for the Suncorp team involved taking weather data and translating into an insurance-specific context.

“There are a lot of indices available, a lot of metrics we could use, but what we really needed to do was tailor it to natural hazards events that caused damage from an insurance perspective,” Ms Ye said.

“It’s not just about a storm – but asking: ‘Is it a damaging storm?’ That was the missing part of the puzzle.”

Leveraging the strengths of a multidisciplinary team made up of data scientists, climate scientists and actuaries was key to solving the challenge.

“Having a wide range of skills and expertise to utilise lends us the ability to deal with the data, deal with the science and meld it into something that is useful for the business and insurance industry,” Lisa said.

“We were working with terabytes of data dating back to the 1940s. There was a lot of data you can pull, a lot of different metrics, a lot of different climate metrics that is hard to interpret without the science background.”

Dr Whitley stressed it was the actuaries who enabled the team to close that knowledge gap in the final instance by understanding how climate changes affected their customers and portfolios.

“You need to marry the science and the insurance together,” he said.

An importance piece for the safety of Australians

Craig Jennings, Vice President and Managing Director of SAS Australia and New Zealand and one of six judges for the prize, said the project stood out both for its complexity as well as the enormous impact it could have.

“This was a complex project due to the high number of diverse data sets Suncorp were working with. Creating a unified, federated image the team could use for their AI models is hard to do, and they did a great job and in such granular detail,” he said.

“The world of the Suncorp team is very important and can potentially have the biggest impact for the safety of Australians and globally.”

The data and models used by the Suncorp team could be shared with other groups such as emergency services, to let them position their resources ahead of flood, fire and other significant events to have the quickest response time – and be built on, year on year, and refined over time.

The team acknowledge that their tool has the potential to benefit the wider community.

“From an organisational perspective we are exploring how this will affect how we respond to events, whether that be knowing which areas to target and lining up assessors to be available, or forewarning our customers,” Dr Whitley said.

“But there’s also the potential to release that information to the wider community.

“If we can see risks developing in certain regions, we can warn people and look at the specific hazards they could be exposed to. It gives them more impetus to try and prepare themselves.”

Making impact across industries

Two other finalists from Coles and Forethought were also praised for their outstanding submissions to the 2024 SAS Practice Prize.

“This year’s finalists in the SAS Practice Prize demonstrate the incredible impact that data-driven insights can have across very different industries,” said Professor Yalçın Akçay, Director of the Centre for Business Analytics.

The team from Coles, including Dr Sachintha Karunaratne, Indika Dissanayake, Dr Jithin George and Kriti Chhabra, presented a dynamic markdown strategy for products reaching the end of their shelf life.

The complex strategy uses a range of data sets including inventory levels, sales frequency and seasonal trends to determine the perfect time to mark down an item, and the perfect price – boosting profitability and improving customer satisfaction.

From Forethought, Dr Carissa Carter and Katherine Mai presented a project which sought to optimise two major factors of the in-flight experience for Cathay Pacific: the food and beverage offering and the seat design.Through a scientifically-robust research program, the team uncovered key insights which showed a strong preference for flatbed seats in business class – as well as the unexpected positive impact that the inclusion of a bread roll has on customer satisfaction. These insights have already enabled Cathay Pacific to make informed strategic decisions that will improve their customer experience.

Embracing the profound AI transformation

The 2024 SAS Practice Prize winner was announced at culmination of the Melbourne Business Analytics Conference, held on Thursday, 15 August at the Grand Hyatt Melbourne.

This year’s theme, ‘Redefining the Future of Business with AI’, shone a light on the rapid uptake of artificial intelligence which has quickly evolved from a mere toolset to a critical component of business infrastructure.

In her welcoming address, Professor Jenny George, Dean of Melbourne Business School, spoke about the important role of the conference and the Centre for Business Analytics in helping organisations embrace this profound transformation.

“Not only are we educating future leaders through our degree programs, but we’re involved with educating leaders who are currently encountering AI and data literacy challenges throughout some of Australia’s largest corporations,” Professor George said.

Anita Arbogast, Executive Director of the Centre for Business Analytics and Conference Chair, said the Centre was uniquely placed to assist leaders with these challenges – and to find the opportunities they present.

“In this pivotal moment of AI adoption and rapid transformation, our unique position as trilinguists in mathematics, business, and technology allows us to provide unparalleled access and clarity to business leaders, empowering them to make informed decisions that shape the future," she said.

 

Robyn Hill, Head of Retail/CPG for Asia Pacific at Amazon Web Services, was one of 40 speakers at the conference and emphasized the importance of the event for bringing the community together to harness the transformative potential of AI, while also mitigating its ethical and societal risks.

"We're witnessing an unprecedented era of excitement in the AI community," Ms Hill said.

"An event like this is crucial, as it fosters the exchange of cutting-edge ideas, facilitates discussions on what people should consider, and encourages innovative thinking instead of mere iteration.

"Responsible governance is also a vital aspect that cannot be overlooked. Being part of a community like this helps highlight important considerations that might be missed when working in isolation.”

Owen Wilson, CEO of REA Group, said the conference played an important role in stimulating ideas during his opening presentation.

“Events like this are incredibly important because they get people out of their day-to-day and expose them to what other people, other organisations are doing,” he said.

“It is a great opportunity to prompt people to do something that is different.”

Rui Jiang, an alumni of the Master of Business Analytics program and now a Digital Analyst at Mecca, agreed with this sentiment, finding the conference exposed her to new concepts.

“I saw a lot of retail examples, and how they were adapting the machine learning AI and generative AI, and I can think of a lot of applications for these ideas to the work I do at Mecca,” she said.

Leah Weckert, Managing Director and CEO of Coles, said the conference highlighted the passion and commitment of Australian businesses seeking to harness the potential of data and technology.

“I’d heard how brilliant the annual Melbourne Business School Data and Analytics Conference was, so it was a privilege to be invited to speak this year,” she said.

“The questions raised for my session on how Coles is exploring the use of AI highlighted a keen interest in the opportunities and challenges our industries faces as we advance in its adoption. The event reinforced for me that we have a strong community of innovators here in Australia.”

To see the full list of speakers from this year's conference, visit the Melbourne Business Analytics Conference page.

To stay up to date with analytics information and research at Melbourne Business School, visit the Centre for Business Analytics page.

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