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Modeling develops for liability catastrophe risks

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Modelers are working to use “big data” to identify and measure emerging potential liability catastrophe risks that could lead to mass tort litigation, according to a report released Thursday by Lloyd's of London and modeling firm Praedicat Inc.

While property cat modelers rely on established science and exposure data to project losses, slow-developing liability catastrophes, such as asbestos injuries, are harder to spot in their early stages and harder to predict in their long-term impact on insurers, the report says.

Los Angeles-based Praedicat, though, has developed systems to help insurers identify and measure emerging exposures such as potentially toxic nanomaterials or earthquakes caused by hydraulic fracturing.

The models are designed to mine data sources including news feeds, professional and medical journals, and regulatory and legal databases to look for emerging bodily injury, environmental and other exposures. They also track any developing scientific consensus on causation that could in turn lead to successful lawsuits against policyholders, Lloyd's and Praedicat said in the report.

The emerging risk data is then projected onto an insurer's book of business to assess which policyholders are exposed to mass tort losses and to what degree, the report says.

Insurers will be able to use the model to manage risk selection and accumulation, while reinsurers might use it to develop new named peril and casualty clash products, Lloyd's and Praedicat said.

Praedicat, formed in 2012, is headed by President and CEO Robert T. Reville, a former senior economist at Los Angeles-based RAND Corp. Praedicat board members include Jacques Dubois, retired former CEO of Swiss Re America Holding Corp., and Hemant Shah, president and CEO of Newark, California-based catastrophe modeler Risk Management Solutions Inc.