Prepping for liability catastrophes

Technological innovations have opened dozens of industries up to enormous liability catastrophes but an innovative analysis firm is using new techniques to plot otherwise unpredictable risks.

The latest emerging risk report from Lloyd’s delves into the relatively new field of using big data analytics to garner better insights into large-scale liability risks.

“Accumulations of liability risk have the potential to send shockwaves through the insurance industry, and are one of the most complex exposure management challenges faced by insurers,” the report states.  [Click to tweet]

“The impact of new technologies can be much more complex than anticipated, and it can take several years before the wider consequences are understood.”

The accumulation of commercial liability risk is seen as one of the insurance industry’s most challenging problems, and one that is only worsening in the face of technological and scientific process.

Asbestos, and the US$85 billion in losses it caused in the United States alone, is one example of a liability catastrophe that blindsided the insurance industry, but Lloyd’s also points to three contemporary examples that could pose similar liability risks – endocrine disruptors (common additives to many plastics that may cause widespread public health problems), hydraulic fracturing (also known as fracking, the resource extraction technique risks groundwater contamination and increased earthquake activity) and nanotechnology (carbon nanotubes, one of the most promising nano materials, has been shown to produce mesothelioma-like afflictions in laboratory animals).

“Science-based risk can lead to liability catastrophe, as seen with asbestos,” the Lloyd’s report states.

“The insurance industry, to date, has not had the ability to manage this risk.

“However, the explosion of external data describing bodily injury and property damage risks and about corporations in recent years could help solve this problem.”

Using the example of LA-based firm Praedicat, Lloyd’s posits that applying big data mining techniques to new sources of information should help insurers better understand these types of emerging liability risks.

Praedicat specialises in analysing biomedical literature, such as journal articles, to characterise emerging commercial risks.

“Big data makes identification, contextualisation, projection and quantification of casualty emerging risks possible; with this information at their disposal, casualty insurers can create the incentives needed for their clients to take appropriate precautionary actions,” Lloyd’s states. 

“As a result, bans and exclusions could be employed more sparingly by regulators, and only when the science warrants. With big data about science informing insurer decision making, liability insurers can help make the world cleaner, healthier and safer for the public and their investors alike.”

View the full report here.

Meanwhile, Lloyd’s General Representative in Australia Chris Mackinnon has announced that from 2016 onwards Lloyd’s syndicates will be able to write binding authority contracts for up to three years, up from the current limit of 18 months.

“This change represents significant progress in Lloyd’s objective to make it easier to do business,” he says.

“Lloyd’s expects this change will not only make it easier to do business in the Lloyd’s market but will help build long term partnerships between coverholders and Lloyd’s syndicates.”