Moody’s and Praedicat: A new vision for casualty...

Praedicat: Casualty risk pioneers

We'd imagine Praedicat is a familiar name for many of you in the P&C industry, and this acquisition feels like coming full circle, as in 2012, Moody's RMS was one of the original founding investors. Dr. Robert (Bob) Reville and his team based in Culver City, California, are pioneers in casualty risk analytics. They help casualty insurers, brokers, and reinsurers assess a myriad of potential perils that could generate significant liability and subsequent insured losses.

It was interesting to look back at the 2012 launch announcement, with Praedicat "…looking to use new approaches to extend a field of analytics called catastrophe risk modeling, and to develop 'liability catastrophe models.' Liability catastrophes are catastrophes with a human cause for which businesses or people may be held liable, such as asbestos or climate change."

What is an example of a 'liability catastrophe'? Where property insurers use major hurricanes and earthquakes as examples, liability insurers use examples such as the asbestos crisis that rose to prominence in the late 1980s and early 1990s, as the long-term, devastating health impacts of this commonplace material came to the fore.

In the U.S. alone, it was estimated that 27 million people had been exposed to asbestos in the workplace, and 100 million were exposed to asbestos products in buildings. AM Best estimated in 2017 that asbestos litigation and losses, as well as environmental losses for the U.S., totaled US$146 billion, of which insurers had funded US$130 billion.

A driving force in setting up Praedicat was to help casualty insurers benefit from the same risk analytics rigor that property and life insurers were becoming used to. Stung with significant losses from claims such as asbestos, Praedicat's mission was to '…better manage man-made catastrophes, and help clients to avoid them.'

Praedicat has developed risk management solutions to help insurers understand a potential client's exposure to what they define as Litagion® agents, specifically identified exposures that could produce future liability claims. Some of these agents subsequently generated rising claim levels, such as products containing PFAS (per- and polyfluoroalkyl substances), or mass tort claims for products ranging from glyphosate and talc. It also helps manufacturers and solution providers to build products and services that minimize future liabilities, learning lessons from past mistakes and scanning the horizon for emerging threats.

As environmental concerns continue to climb up the agenda for countries at different stages of industrialization, past- and present pollution liabilities loom, and with climate change seeing rising severe heat levels, for example, insurers need to examine climate liability scenarios that contemplate a range of climate-induced litigation events that could trigger general liability, directors and officers (D&O), and workers' compensation policies.

Climate liability is creating significant dislocation for casualty firms, as the risk of climate liability, combined with social inflation factors, and the rise of litigation finance, all generate uncertainty. The acquisition of Praedicat represents the commitment of Moody's Insurance to deliver solutions for these pressing issues facing the industry, as modeling and risk assessment solutions deliver greater predictability and profitability to insurers.

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