Last week, Praedicat, a liability risk analytics company, announced that it launched a new Company Risk Score designed to simplify the underwriting of complex emerging risks for liability insurance.
The Company Risk score, ranging from 0 to 100 for every one of more than 100,000 companies tracked by Praedicat, summarizes the company’s exposure to latent liability risk, explained David Loughran, Senior Vice President of Product and Co-Founder of Praedicat.
A score of 0 means the company has no material exposure to 265 emerging risks tracked by Praedicat, with risk scores getting higher with increasing likelihood that a company will be named in lawsuits alleging one or more emerging risks that caused plaintiffs’ harm.
“A score of 100 means the ‘house is on fire.’ The company is very likely to be named in a mass litigation event, or perhaps has already been named,” Loughran explained to Carrier Management via email.
The Company Risk Score, available in Praedicat’s emerging risk software product CoMeta, applies machine learning and artificial intelligence technologies to identify emerging risks in scientific literatures. Once new risks are identified, the literatures are tracked over time as they acquire the characteristics needed to be admitted as scientific evidence in litigation. Praedicat connects the commercial exposures associated with the risks to the business activities of companies, and then quantifies the probability of litigation for any company and any particular risk.
Essentially, Praedicat’s Company Risk Score “distills text data describing risk from tens of thousands of published scientific articles, connects the risks to over 100,000 companies, and then summarizes the connections for any company into one actionable score,” Loughran said.
Julia Fuller, Senior Vice President, Account Management, noted that insurers had been asking for a simple way to benchmark risk and to triage underwriting resources. “That’s what the new score is designed to deliver.”
According to media statement, the Company Risk Score is designed for general liability, directors and officer liability and products liability underwriting and risk management.
For brokers, the Praedicat Company Score provides immediate guidance on their clients’ insurance program. “Are they buying enough limit? Do they have coverage for their largest emerging risks? How do they compare to their peers?”
Risks covered include chemicals and plastics, products such as cell phones, environmental exposure such as diesel, climate risks from greenhouse gases, and new materials and technologies such as nanotech. Ongoing mass litigation events, like those centered on per- and polyfluoroalkyl substances (PFAS), agricultural and consumer herbicides, arsenic-laden baby food, and talcum powder are built into the scoring.
New risks are added regularly, and the scores will evolve as new risks emerge and as companies themselves develop and improve their business operations
Responding to follow-up questions from Carrier Management about score interpretations, Loughran confirmed that not only will insurers be able to quickly triage using an overall Company Score, but “there is also a risk score for every company and hazard that shows users what’s driving the company’s overall risk score.”
“These component risk scores, for example, might indicate that Company A’s top latent liability risk is PFAS, whereas Company B’s top latent liability risk is hydraulic fracturing.”
Do scores vary by line of business? Would Company A have a different score for D&O vs. product liability, for example?
Loughran said that the company risk score is calibrated for general liability and products liability underwriting. “The score, however, could be used to help D&O underwriters assess the risk a company could be named in securities litigation tied to an underlying mass litigation event,” he said, providing the example of J&J being named in securities litigation as a result of personal injury litigation over their talcum powder products.
Giving more information on overall score interpretation, Loughran said the overall CoMeta company risk score can provide insights to brokers as well as underwriters.
For brokers, the score provides immediate guidance on their clients’ insurance program. “Are they buying enough limit? Do they have coverage for their largest emerging risks? How do they compare to their peers?”
For underwriters, he said, scores between 20 and 80 probably provide the most actionable information. Providing some ideas in a message he wrote for CoMeta users, Loughran said that in this range, the underwriter can engage the risk manager and their broker in a dialogue about their risks, offering valuable risk insights to clients and suggestions for enhanced coverage.
- A score of less than 20 means the chance of future litigation for the company (measured over an eight-year forecast window) is less than 1 percent. In this “emerging interest phase,” science might be just starting to emerge about potential harms from one of the companies products, but litigation hasn’t started.
- A score of 80 or more means the likelihood plaintiffs file complaints against the company alleging harm from one or more emerging risk is high—typically greater than 25 percent—or that the company might have already been sued.
Scores in between these goalposts, could trigger internal consultation for carriers on aggregation management and control. “A carrier might decide, for example, that a company risk score of 60 or more should always be subject to a referral to underwriting management,” he said, using the 60-threshold as a hypothetical example.
The threshold chosen is not the point. “The point is that the company risk score makes it possible to deliver value to clients, and communicate an underwriting strategy internally, consistent with a carrier’s appetite for accumulating emerging risk, that their underwriters can readily act upon.”
Decisions points around premium adequacy and exclusions, attachment points and limits are also flagged by scores in this range, Loughran wrote in his message to CoMeta users.