Casualty predicted to boom

“Praedicat’s collaboration with Aon is designed to address new challenges and provide innovative solutions for insurers grappling with emerging risks,” said Bob Reville, chief executive officer and co-founder at Praedicat, a company recently acquired by Moody’s.

There’s been a profound shift in the casualty risk environment, driven by factors such as social inflation and litigation finance, which has prompted a strategic partnership between Aon and Praedicat, aiming to tackle the complexities of modern casualty risks. 

As Reville explained: “Swiss Re has reported that the litigation finance industry today is as large as $20 to $30 billion, with much of it fuelling mass torts.

“This has significantly altered the risk profile for general liability insurers, increasing the latency of exposures and correlating risks across portfolios.”

The term “social inflation” encapsulates the phenomena of rising litigation costs and broader legal claims, and Reville highlighted how this trend is exacerbated by litigation finance, which impacts how insurers manage their reserves and risk assessments. 

“With increased latency, claims from legacy portfolios are surfacing long after policies have closed, and heightened correlation means a single litigation issue can affect numerous accounts simultaneously,” he said. 

“We are exploring ways to apply advanced analytics to climate litigation.” Amanda Lyons, Aon

Better risk management

This environment of increased volatility necessitates innovative approaches to risk management.

Amanda Lyons, managing director at Aon, elaborated on how this partnership aligns with Aon’s broader strategies for managing emerging risks. 

“We’re seeing more frequently that clients struggle to evaluate their casualty risk using traditional methods,” Lyons noted. 

Aon’s collaboration with Praedicat seeks to address these challenges by incorporating advanced analytics to better understand and manage casualty risks, and Reville provided an example of how this partnership has led to the development of new tools and insights that are being applied in real-world scenarios.

“By analysing the portfolio of one of Aon’s insurer clients, we identified a significant exposure to pesticide-related claims,” he explained. 

“We advised them to consider increasing their casualty reinsurance limits and, more innovatively, to purchase additional coverage on a named peril basis for specific risks such as pesticides.” 

This approach allows insurers to obtain coverage tailored to specific exposures rather than a broad, less effective policy.

Lyons added that the collaboration was about practical solutions as well as reinsurance structuring. She spoke of the risks of perfluoroalkyl and polyfluoroalkyl substances (PFAS), synthetic “forever” chemicals used globally in consumer products since the 1950s.

“In areas like PFAS, which are crucial in industries such as electronics and batteries, we help clients navigate the balance between coverage and risk management. 

“From the beginning, we have used AI.” Bob Reville, Praedicat

“Excluding PFAS entirely from coverage could be detrimental, given their importance in various technologies,” she added. 

The partnership aims to find nuanced solutions that address these complex risks without resorting to broad exclusions.

The collaboration is also paving the way for innovative casualty reinsurance products, and Reville highlighted the development of new types of coverage, such as legacy and clash reinsurance. 

“We’re working on products that address the increased latency and correlation in casualty risks. 

“Legacy reinsurance helps manage risks from past claims, while clash reinsurance deals with correlated exposures from multiple sources,” he explained. 

The creation of named peril excess casualty top-up policies allows more precise coverage, addressing specific high-risk areas without overextending resources.

Technology plays a central role in this partnership, and Reville noted: “From the beginning, we have used artificial intelligence (AI) to process and analyse large volumes of data.

“This technology is crucial for understanding emerging risks and quantifying potential claims.” 

Lyons emphasised the practical application of AI, stating: “While we focus on helping clients use AI effectively in areas such as claims and rate filings, partnering with Praedicat allows us to tap into their advanced models and insights.”

Looking forward, Lyons is excited about new ventures and further innovations, particularly in climate risk and casualty reinsurance. “We are exploring ways to apply advanced analytics to climate litigation and other emerging areas. 

““The goal is to provide clients with rigorous, actionable insights, that help them to manage their risks more effectively and shape better business decisions,” she said.

Reville echoed this sentiment, noting: “The emergence of a casualty catastrophe market could significantly transform the industry. 

“Given the risk landscape today, there is a need for transformation, and addressing it through casualty catastrophe reinsurance or insurance products can turn this risk into an opportunity for the industry and be a source of growth while they’re working with their clients to solve their business problems.” 

Bob Reville is chief executive officer and co-founder at Praedicat. He can be contacted at: reville@praedicat.com  

Amanada Lyons is a managing director at Aon. She can be contacted at: amanda.lyons@aon.com 

For more news from the Rendez-Vous de Septembre (RVS) click here.

Did you get value from this story?  Sign up to our free daily newsletters and get stories like this sent straight to your inbox.