Reinsurance News

Re/insurance opportunity as mass tort litigations escalate: Praedicat CEO

3rd October 2019 - Author: Matt Sheehan

With mass tort style litigations reaching new highs in 2019, insurance and reinsurance companies should increasingly be thinking about how to capitalise on this emerging opportunity, according to Robert Reville, CEO of insurtech risk modelling and analytics firm Praedicat.

opioid pillsSpeaking at the Reinsurance Rendezvous event in Monte Carlo, Reville explained that a number of factors had come together to drive the increase in mass litigation activity this year.

For example, hedge funds and other sources of capital are now helping to finance litigation in the US, making it possible for the plaintiff’s to continue to drive very expensive forms of litigation.

Additionally, some of the most prominent litigation cases, such as opioids litigation, involve multiple levels of government where previously only states had been affected,

What’s more, Praedicat believes there is a sense that the jury pool in the US is increasingly suspicious of corporations, and are more willing to accept that they could have been involved in nefarious actions.

Finally – and of most relevance to the re/insurance industry – is the decades of accumulated science that is being brought to bear to describe what corporations are selling and doing that could potentially cause bodily or property damage, or environmental damage.

“But, as it turns out, this is also the way that the we identify and model and quantify the emerging risks and the potential size and cost of mass litigation,” Reville told attendees at the Praedicat briefing. “So it’s both part of the risk, but it’s also part of the opportunity to understand it and predict it better.”

However, Reville acknowledged that just identifying emerging risks is not in itself particularly helpful to the re/insurance industry.

“Once you know something could potentially cause a lot of litigation, if you can’t find it in your portfolio and quantify the risk, you are only going to be wanting to exclude it,” he explained.

Praedicat takes this scientific component a step further by mapping emerging risks on to the profiles of 60,000 US companies, allowing them to quantify those risks and think about how to potentially cover them and price for them, rather than just to exclude them.

“In general we have identified hundreds of companies in our data that are significantly under-insured,” Reville noted, adding that with mass litigation on the rise there is a real opportunity for re/insurance to move in.

“These risks are quantifiable,” Reville said, “and so we believe that insurers should be thinking about how they can cover them, price them, and then manage the aggregations and transfer to reinsurance and capital markets.”

“We actually estimate the size of an industry that would emerge potentially around this type of approach to large-scale casualty emerging risks,” he continued.

“First of all, we think that it could support a $15 billion named peril reinsurance market, similar to that of the property cat market. And that that would facilitate creating $90 billion more coverage that could be offered by insurers every year. There is also – in our estimates – $86 billion in legacy on the existing books of insurers from the risks that we model, which could be an opportunity to run-off insurers and reinsurers.”

Formed in 2012 by RAND Corporation and Risk Management Solutions (RMS), Praedicat uses machine learning and artificial intelligence to scan over 30 million scientific journal articles to identify and track emerging risks.

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