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In the past, only seers and fortunetellers could draw back the mists of time to take a brief glimpse into the future. But mystics are redundant in an age of electronic 1s and 0s, with palm lines, crystal balls and chicken entrails making way for data collection and analysis to identify future risks.
Allianz Global Corporate & Specialty (AGCS), the corporate insurance arm of Allianz SE, has joined hands with analytics company Praedicat to predict with increased accuracy the key catastrophe liability risks ahead.
What makes data analytics such a valuable tool? Typically, insurance uses data from historic claims to price and manage risks but emerging risks relate to new products or technologies that have no claims history. This can make pricing such risks challenging. “Think of asbestos and silicone – innovations that eventually destroyed companies and lives,” says Robert Reville, Chief Executive Officer of the Los Angeles-based Praedicat. “Autoimmune disease claims due to silicone breast implants sent supplier Dow Corning into bankruptcy, while lung scarring and cancer caused by asbestos forced hundreds of firms to seek bankruptcy protection.”
Asbestos ultimately cost the insurance industry $100 billion, more than any hurricane or flood in history, says Reville. Yet, for decades, insurers covered products that used the material even though there was a growing body of scientific work describing its harmful effects. Praedicat’s forward-looking data approach involves a patented method for processing large volumes of peer-reviewed scientific literature and evaluating the likelihood that new products or substances will generate litigation risks over their lifecycle.
Reville says Praedicat seeks to understand what scientists believe are companies’ actions that might lead to bodily injury or property damage. When risk agents are identified, they are tracked so emerging data increasingly shapes the scientific acceptance of the risk.
In Reville’s view, liability risks are unintended consequences of technical innovation. “Whenever you see innovation, say a new material that's hyper-conductive or super strong, then it will interact with the world in completely novel ways,” he elaborates. “While those materials may address the problem they're intended to solve, the long-term consequences over the lifecycle of the product are unknown.”
It can take years, even decades, for the widespread human and environmental exposure to play out. DDT was once hailed as an efficient pesticide; asbestos was used as far back as the 18th century; and plastic micro-beads were considered good exfoliating agents in cosmetic products – until they were found to have a huge impact on the food chain. AGCS’s global Liability Underwriting team and Praedicat currently engage in various projects. Under the partnership, the underwriting processes and extensive risk portfolio analysis of AGCS are integrated with Praedicat’s predictive modeling approach. The combination means AGCS liability underwriters now have access to solid data that allows them to better assess potential ‘unknown’ liability risks for industries or even individual companies with higher confidence.
“Forward-looking models will transform insurance underwriting,” says Hartmut Mai, Chief Underwriting Officer and Board Member, AGCS. “Through this collaboration, we hope to change the core role of underwriters, freeing them up from the daily paper grind and empowering them to be data scientists.” AGCS liability underwriters use Praedicat’s data analysis tools to gain an understanding of the latest trends in scientific discussions. With a few clicks in the digital tools, they can learn if a specific substance is becoming more critical over time or if it is now being considered more positively than in the past.
These insights complement the overall risks assessment, which includes claims analysis and reports from AGCS risk engineers. Clients benefits as well, says Michael Hohmann, AGCS Global Head of Liability: “We can now better help clients understand potential emerging liability risks impacting their company, enable them to achieve better product stewardship and to tailor their insurance program to their specific risk profiles.”
So, where will the next wave of mass litigation and liability insurance claims potentially emerge? Today, there is a flow of breakthrough innovations whose consequences are unknown – from genetically modified organisms to nanotechnology, 3D printing and fracking. One area science is examining intensely, according to Praedicat’s analysis, is endocrine-disrupting substances – chemicals that interfere with the endocrine (or hormone) system. Reville says that the potential harm resulting from exposure during infancy or childhood is referenced increasingly in peer-reviewed medical journals. Such disruptors can cause tumors, birth defects, and other developmental disorders.
“Given that weight of energy in the science,” says Reville, “it's our guess that as the pursuit of the environmental drivers of these new kinds of health conditions ultimately plays out that's where you'll find the ‘next asbestos’.”
AGCS is also cooperating with Praedicat in a joint series of publications on emerging liability risks. The first paper on ‘Nanotechnology in Food’ has already been released.
Allianz Global Corporate & Specialty (AGCS) is the Allianz Group's dedicated carrier for corporate and specialty insurance business. AGCS provides insurance and risk consultancy across the whole spectrum of specialty, alternative risk transfer and corporate business: Marine, Aviation (including Space), Energy, Engineering, Entertainment, Financial Lines (including D&O), Liability, Mid-Corporate and Property insurance (including International Insurance Programs). Worldwide, AGCS operates in 30 countries with own units and in over 210 countries and territories through the Allianz Group network and partners. In 2016, it employed around 5,000 people and provided insurance solutions to more than three quarters of the Fortune Global 500 companies, writing a total of 7.6 billion euros gross premium worldwide annually.
AGCS SE is rated AA by Standard & Poor’s and A+ by A.M. Best.
Praedicat is a science-based data analytics company that offers a new approach to emerging risks. The company works with (re)insurers and companies to manage liability exposure and capture opportunity for better risk management and product stewardship. Praedicat was formed in 2012 by RAND Corporation and Risk Management Solutions Inc when the need to improve identification and prioritization of emerging risks collided with the availability of cutting edge knowledge engineering and modeling technology. Since then, Praedicat has been named by CIO Review as one of the top 20 most promising insurance technology solution providers.
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