Swiss Re licenses next-gen liability/casualty risk modelling tool
Praedicat reports that Swiss Re has become the first company to license Oortfolio, Praedicat's next-generation liability/casualty risk modelling platform. Rather than historical claims data, Oortfolio uses data science to mine the text of peer–reviewed science to create a forward-looking model, aiming to identify commercial products or activities that may cause harm and creating a probabilistic microsimulation model of future mass litigation. The firm claims its platform will enable the liability insurance market to experience that kind of growth, increased stability and innovation seen in the catastrophe market, which has attracted new sources of capital from hedge funds to the property insurance market.

Swiss Re is the first to license the platform designed to do for casualty insurance what CAT modeling has done for property over the last few decades.

(Oortfolio addresses cumulative liability threats analogous to property catastrophe. Image credit: Adobe Stock.)

Praedicat, a Los Angeles-based insurance analytics company formed by RMS (Newark, Calif.) and nonprofit public policy research institute RAND Corporation, has released Oortfolio a liability insurance risk modeling platform. The vendor describes the new offering as applying cutting-edge data science and modeling to provide an unprecedented emerging risk underwriting and aggregation risk management capability to liability insurance and reinsurance.

“Oortfolio moves away from the backward-looking paradigm of using historical claims data to understand risk, and brings together a full complement of modern data, technology and modeling to create forward-looking liability insurance operations,” comments Robert Reville, CEO, Praedicat.

A New Kind of Data and Modeling

Praedicat reports that global reinsurer Swiss Re is the first company to license Oortfolio. “Liability insurance covers companies across many industries, including those that create new technologies, innovations, products and practices that haven’t yet generated claims,” comments Andrea Scascighini, Head of Casualty Accumulation Solutions, Swiss Re. “Managing these risks requires a new kind of data and modeling—forward-looking modeling—which Swiss Re is bringing to the market both through its own models and through partnerships with independent modelers like Praedicat.”

Praedicat reports that its technology, together with its team of scientists, mines the text of peer-reviewed science for hypotheses that commercial products or activities are causing harm. Using these data, Praedicat says it has built a probabilistic microsimulation model of future mass litigation consistent with the underlying science. Praedicat says it uses this microsimulation model and data collected on the business activities of specific companies and all industries to estimate their exposure to litigation. Oortfolio’s risk information facilitates measuring the total risk in an insurance company’s portfolio, as well as the risk in the underlying companies and industries.

Oortfolio is also a powerful tool for insurers to manage the growing regulatory oversight of casualty insurance, the vendor asserts. “There is increasing regulatory focus on the stability of financial institutions, from Federal Reserve oversight in the United States to Solvency II in Europe.” comments James Thomson, Praedicat’s chairman and former CEO of RAND. “Oortfolio represents an important step forward for casualty insurance to be more transparent and for capital to be managed with the same rigor as other financial products, giving confidence to customers and the financial system as a whole.”

Casualty Insurance—the Neglected Sibling of P&C

Praedicat couches its launch of Oortfolio in terms of a historic moment for casualty—as opposed to property—insurance. In the last thirty years, catastrophe modeling has become part of the fabric of property insurance, where modeling the risk of property damage from natural catastrophes is expected by regulators and rating agencies, a Praedicat statement observes. The adoption of these models has reduced insurer insolvencies from natural catastrophes. It has led to significant market growth as well as the entry of new sources of capital, such as from hedge funds, to the property insurance market. In addition, it has driven both substantial product innovation and new types of insurance risk transfer, such as catastrophe bonds. The vendor asserts that Oortfolio offers the possibility that liability insurance will similarly experience new growth, greater stability and increased innovation.

“We call it the Golden Age of Casualty,” Praedicat’s Reville adds. “Casualty has been the neglected sibling of property for thirty years, but new technologies from the field of data science, combined with Praedicat’s innovative modeling, have made it possible for casualty to have its turn. The Golden Age is dawning. We are proud to deliver this capability to the market.”

Praedicat was created out of a research and development initiative between The RAND Corporation, a nonprofit research organization, and Risk Management Solutions, Inc. (RMS), and both companies are investors.

“Many had thought liability catastrophe modeling impossible,” said Hemant Shah, CEO of RMS and a Board member of Praedicat. “What Praedicat has done is a remarkable technical achievement. Property and casualty re/insurers can now rigorously quantify both their property and liability risks.”