Casualty modelling
A NEW PERCEPTION
Praedicat, a collaboration between RAND, the public policy think- tank in California, and Risk Management Solutions, is taking an innovative approach to revolutionising the way in which casualty risks are understood and managed by the re/insurance industry.
There is agreement within the industry that improved modelling in the casualty sphere will drive necessary growth within the market.
However, the complexity of casualty modelling, particularly within certain lines, has previously prevented modellers from developing further.
gain a better understanding of past losses and help to predict future losses. Advancements in technology
have previously prevented this
technological approach within casualty. However, as the company’s CEO, Bob Reville explains, Praedicat has big plans for the casualty market, which he says has faced perhaps the worst catastrophe in insurance history.
“We had observed that the casualty markets did not have comparable
catastrophe modelling capabilities when compared with the property sector, but yet had experienced arguably the worst catastrophe in insurance history: asbestos. We decided that we wanted to try to solve
Reville says that historically, after a casualty catastrophe, products
are removed from the market and companies go out of business, and cannot solve this problem.
“We started thinking about how scientists are always looking for new things that might be driving public health issues, and knew that if we before litigation starts. So we decided to apply new technologies of text-
“While science plays a vital role in the understanding and predicting of
has resulted in large volumes of data being pushed to one side.
“Before the 1980s, insurers felt they could ignore science until it
matures. As a result, they got hit by litigation that they could have managed if they’d been tracking the areas that science was, or had been, focused on. By the time the science was mature, the claims emerged and
“Since asbestos and pollution litigation, there has been a shift towards an emerging risk perspective for a lot of casualty insurers. The idea was to have a committee search for things that might be the next asbestos and to exclude them when you found them. But this approach is subject to false positives and the problem is too large to be solved by a committee. By using technology, you can reach a happy medium to recognise where
24 | INTELLIGENT INSURER | Spring 2015
the science is going and use it to manage your accumulations, but not overreact and undermine your insurance product by running away
Praedicat is currently focused on risks which might hit general liability and excess casualty, which is where asbestos hit. However, this could also cover risks from activities such as fracking, nanotechnology, plastics, pesticides and many more.
A fairly new entrant within the sector, Praedicat is hoping to transform the way in which insurers consider these risks, and prevent increased retentions, lower limits and more exclusions, which have been evident within the sector.
Reville says that a heightened understanding of the risk will encourage
strategic partnerships between insurers and their clients, making the industry more relevant.
However, this is not without its challenges, as Reville explains.
“Insurers have been fearful about taking on risks where there hasn’t been claims experience, which impacts their ability to price it. The problem is that the things that have no claims experience may most need insurance. For example, technological change, which drives economic progress, inevitably has no claims experience.
“If insurers can’t work with innovative companies driving
technological change, we can’t progress. Forward-looking modelling
As the industry continues to experience declining premiums for
property insurance, the casualty sector is seeing more interest than it has for 10 to 20 years, and Reville says that Praedicat can help these companies to feel comfortable with this level of growth.
SHUTTERSTOCK / TOMMASO LIZZUL
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