What risks do we see out on the horizon of 2020 and beyond? On the far horizon, are there perils with only the faintest early signals of risk detectable from the scientific literature that have the potential to develop adversely? A little bit closer to shore, are there more developed perils in broader use in the economy that are approaching the threshold where litigation could be triggered? And finally, is the opioids litigation laying out a roadmap for legal innovation that could lead to new widescale successful fourth party litigations? To learn more about all of these possibilities, check out this presentation, which Bob Reville, Praedicat’s CEO, delivered at Le Rendez-vous at Monte Carlo on September 9th, “The Nine Newly Known Unknowns.” Bob’s talk was widely covered in the media, with a few examples here:
Insurance Day: Modeling Insurance Risk on a Named Peril Basis
The Nine Newly Known Unknown Perils for 2020 and Beyond
A new landscape of casualty emerging risk is forming in the United States. The new terrain includes a revival of bodily injury mass tort litigation and new legal precedents that elevate the need for successfully managing accumulations and creating effective underwriting strategies while providing value to your clients.
Here we will discuss how to navigate this new terrain, and we reveal nine risks demanding elevated attention in 2020. Along the way, we show how with new technologies to identify and track risks, insurers can shift from an exclusionary mindset to one of expanded Named Peril coverage and risk management.
Bodily injury mass tort litigation is back, as juries deliver to plaintiffs in glyphosate (RoundUp) litigation, talc litigation becomes a new wave of asbestos, the mega-scale opioids litigation continues to heat up, the “forever chemicals” PFAS raise fears of forever litigation, and repetitive head injuries risk expands beyond pro sports. Our insurance clients want new solutions but fears of the “next asbestos” understandably make insurers nervous.
Four Factors are shaping the risk in this new landscape:
- A plaintiffs’ bar with new sources of capital
- State, local and tribal governments increasingly relying on litigation to address public health issues
- A jury pool increasingly predisposed to regard commercial actors as nefarious
- Thirty years of accumulated science investigating bodily injury from commercial activity with new mechanisms such as endocrine disruption and the microbiome.
Science is the risk – how unknowns become known. In mass tort litigation, no risk is truly an “unknown unknown” – all risks take years to develop and have prior footprints in scientific literatures or in the courts. This creates a risk emergence timeline you can track if you can harness the data. For eight years, Praedicat has used innovative technology to sort through text-based data to identify and track the newly known unknowns. Our ability to read, quantify and model the science translates the data into actionable information empowering you to anticipate, prepare for, cover and know the unknown.
When we scan the horizon, we identify, measure and quantify risks like the 3 below, where the first science is emerging. This information can be used as early indicators, for litigation that might emerge 10 years down the road. We are tracking over 250 Named Perils based on current and projected science and among the newest are:
Based upon our 2019 findings, here are three sets of three newly known unknowns for 2020.
The first set on Known Unknowns consists of three commercial products and activities that have been newly hypothesized in 2019 to cause bodily injury, an analysis that captures low-probability risks that might result in losses in future years. The three we have selected highlight ever-growing concern in science over exposures from food and water. New science is currently emerging around at two ingredients found in processed food: propyl gallate, a meat preservative, linked to infertility and propionate, a bread preservative, linked to type II diabetes. In addition, we are tracking trihalomethanes, byproducts of water disinfection, linked to obesity.
The second set consists of three commercial products and activities for which scientific research has progressed in 2019 to the point that litigation is potentially closer to starting – specifically, a greater than 1% chance of litigation resulting in $1B in economy-wide losses. There is fast moving science and multiple exposures to cannabidiol (CBD), with scientific focus on liver and cognitive injuries. The most widely used nanomaterial, silver nanoparticles, has a growing evidence base around infertility risk. And the BPA replacements are, as a group, frequently shown to be as risky as BPA.
New Legal Precedent
The third set consists of three potential successors to the opioids litigation. Specifically, we profile three commercially-driven public health issues with significant scientific literatures that could result in litigation initiated by state, local and tribal governments. As the legal landscape is shaped by the opioids litigation itself, Praedicat relies on a scenario-based approach to estimate exposures, estimating losses under the extreme scenario that plaintiffs get all they ask for. Sugar is the top risk of this “next opioid” type due to the scale of the obesity public health crisis. Praedicat’s scenario is estimated as $155B. Primary defendants include sugar-sweetened beverage manufacturers, retailers who sell these products, and fast food restaurants. We also have developed similar scenarios for antibiotics overuse ($91B), and diesel exposures ($114B).
As Praedicat clients, you are able to develop rigorous methods for managing aggregations to latent bodily injury and property damage litigation and exposure-based underwriting strategies for steering their portfolio. This scalable approach to managing & underwriting latent liability risks enables the creation of a Named Peril market for casualty “tail risks.” Tail risks, often excluded or inadequately covered, are a significant coverage gap. With named peril added to existing coverage, and aggregations managed, our approach can create a $90B annual premium growth opportunity for the industry.