Emerging risk can finally be measured
Emerging liability risks are a constant threat to all industries selling products or services and to the insurers protecting them.
Big businesses and industries worldwide dread another “asbestos situation”. The dreadful lung problems caused by asbestos resulted in massive commercial damages in the form of lawsuits totaling more than $200 billion. From a business perspective, risk in new operations and products is enormous, and big companies are constantly watching for the next asbestos scandal among their risks.
But businesses’ approach to this issue trails far behind the actual evolution of risk, according to Bob Reville, chief executive of technology firm Praedicat. “Understanding emerging risk is critical to business, but most companies still address it by getting their executives round a conference table and talking about the news they have read,” he explains. “This is simply not accurate enough and they miss the birth of major risks.”
With the increasing sophistication of big data, machine-learning and processing power, technologists at Praedicat have been able to create systems that scour more than 22 million peer-reviewed science papers to learn new risks. The software then assimilates the data into a simple, but detailed, report for businesses.
The company, which was born out of collaboration between non-profit research organisation Rand Corporation and technology firm Risk Management Solutions, has created a system that reads right across the web for scientific and regulatory papers relevant to the areas in which its clients operate.
The technology identifies early risk trends for a product, company or industry showing up in the scientific papers. It also tracks the development of the literature to see whether a risk is growing. Based on the amount of information and its quality, the system creates a dashboard of accurate emerging risks, their likelihood and severity.
“This is revolutionary for businesses because they can accurately predict the risks that will gain ground in front of them and then they can make much better decisions,” says Mr Reville.
Insurers equally stand to benefit, with the system creating detailed profiles on the many risks their clients face. “By extracting all of the hypotheses in the scientific research, insurers can quantify and qualify their clients’ risk, and price it with real knowledge,” Mr Reville explains.
This also solves another serious problem among insurers – excessive exclusions. Faced with the mass of previously unpredictable new dangers, insurers have favoured exclusions even in the context of losing customers who need the coverage. By accurately understanding emerging risk, insurers can now retain existing business and more safely cover new areas, even when there is no known claim history.
Uptake of Praedicat’s technology has been strong. Insurer Allianz uses the system to assess key risks more confidently and identify new coverage opportunities. Swiss Re has a licence to use the company’s Oortfolio platform to support underwriting and aggregation for insurance and reinsurance.
Outside insurance, General Electric Environmental Health and Safety uses the technology to predict and prepare for risks across its many areas of operation. And large food and chemical companies are also among those working with Praedicat to ensure they spot future product risks.
As businesses seek to outpace their competition, they need to identify emerging risks as early as possible. Using smart big data enables them to appreciate the real risks they face, while also avoiding overestimating risk in safe areas and hampering good innovation.
“Companies want to grow quickly and smartly, and their insurers want to properly cover their risk,” Mr Reville concludes. “There is a clear need to be able to look around the corner and the only way to do so is with proper data science.”
To find out how to manage your emerging risks please visit praedicat.com