Identifying emerging risks ahead of the curve
Herbicides, talcum powder and pain relief drugs are among the newest casualty emerging risks the insurance industry needs to keep its collective eyes on.
But what else is lurking out there in the world of “known unknowns” with the potential to spark mass litigations in the future?
Some answers will be provided when Praedicat hosts a talk at the Hamilton Princess and Beach Club on September 18.
It calls itself the world's first casualty risk analytics company and it is no stranger to Bermuda, or to the challenge of identifying potential new risks before they become mainstream talking points.
To see what lies ahead Praedicat has devised and refined a method of sifting through millions of scientific journal articles, with the help of analytics, to identify new risks.
During the past 10 years the Los Angeles-headquartered company has made repeat visits to the island to share insights with insurers and reinsurers, and work with companies here.
Robert Reville, chief executive officer, said it had worked to develop catastrophe models for liability insurance where the risk is large-scale mass litigation instead of it being a hurricane or earthquake.
“People in Bermuda saw it as being useful for underwriting. Engaging with the Bermuda market shifted our thinking about how the information could be applied,” he said.
The talk on September 18 is titled “The Nine Newly Known Unknowns: Long-Tail Emerging Risks for 2020”, and is expected to attract underwriters, those who work on the claims side, price-risk management and catastrophe management.
Attendees will hear about the new landscape of casualty emerging risk in the US, with multidistrict litigation involving glyphosates, talcum powder litigation and opioids. High profile companies caught up in the litigation include the likes of Monsanto and Bayer, and Johnson & Johnson.
Mr Reville will speak about the new wave of bodily injury litigation and estimates of potential losses, including insurance losses limited by exclusions or small exposure footprints.
In addition, he will talk about three sets of “newly known unknowns” and their potential impact in coming years.
Speaking to The Royal Gazette, Mr Reville explained how Praedicat helps identify emerging risks. He said: “With mass litigation, typically products are going to be removed from the markets, companies are going to go out of business.
“So the typical way an insurance company manages risk by looking at claims data is not going to be useful. We had to find another data source to find things that had not happened yet.”
Praedicat looks for articles that suggest a product, chemical or business practice might be causing bodily injury, and it captures more information about those scenarios from scientific journals and articles it scans using machine learning and artificial intelligence.
It uses the information to predict when evidence-based litigation involving those products or practices is likely to occur.
Being ahead of the curve in this way is useful according to Shannon Totten, casualty insurance practice leader, Bermuda, with Sompo International.
She said if a new emerging risk is on the front page of The New York Times or 20/20 news programme, it is too late.
“We don't want to underwrite by the headlines in a reactive manner. Praedicat tools allow us to be much more thoughtful and proactive,” she said.
“There is so much information in the world it is completely overwhelming and, as an underwriter, we insure mostly the Fortune 500 companies for which there is a plethora for publicly available information.
“You often need just enough information to feel comfortable in making a decision to move forward — and then what terms, conditions, price, coverage, etc, are next on the decision-making chain.”
She said Praedicat's products enabled the tracking of scientific acceptance regarding products and whether the risk a particular substance poses is gaining or losing ground.
Ms Totten will co-present the talk on September 18.
Mr Reville said: “We are describing things that may be imminent, but also things that are new in the science and might not be a problem for five or ten years
“We like to see the data being used by companies to become aware early on about a risk and potentially make changes that allow them to avoid risk and make the world safer and healthier in the long run.”
Another challenge is what happens when a product or substance that is causing concern is switched for an alternative, but then that substitute creates its own issues that are possibly worse than the original?
Mr Reville said a good example is PFAs, which are pre- and polyfluoroalkyl chemicals. Teflon is a well-known example of the potential issue.
He said: “It was removed from the market 15 to 20 years ago, substitutes replaced it, and then litigations start not only on the original chemicals, but also against all the substitutes that science has shown have the same problems.”
Similarly, after concerns about the BPA chemical used to harden plastic, and which is used in food containers and water bottles, scientific evidence now shows that substitutes to BPA might be just as harmful.
The talk on September 18 will conclude with a discussion on how a quantitative approach to identifying, tracking and quantifying newly known unknowns can be used to grow the casualty insurance market and reduce the casualty coverage gap.
• To register for the event go to https://www.praedicat.com/praedicats-bermuda-event/