RMS and RAND Corporation launch Praedicat, aim to facilitate liability catastrophe bonds

Risk Management Solutions (RMS) and RAND Corporation have teamed up to launch a new company named Praedicat, Inc., that will provide consulting services and software to the property and casualty insurance industries with a particular focus on liability risks. Building on both firms years of experience in risk modelling, research and analysis, Praedicat will aim to provide services to assist with modelling emerging risks especially liabilities.

Praedicat is putting catastrophe risk modelling experience from both parties to work to develop liability catastrophe models. They explain liability catastrophes as catastrophes with a human cause for which businesses or people may be held liable, such as asbestos or climate change. Praedicat has been testing its solutions with a number of leading insurers and reinsurers while the technology and software was in development.

“Modeling has transformed underwriting and catastrophe risk management decision-making for the property insurance market,” said Hemant Shah, president and CEO of RMS and a director of Praedicat. “RMS and RAND, and now Praedicat, are excited to extend this transformation to the casualty insurance market, taking it to the leading edge of an industry trend of deeply embedding analytics and models to increase risk-adjusted profitability.”

We asked Peter Nakada of the RMS RiskMarkets team for his thoughts on whether Praedicat could have an impact on risk transfer to the capital markets. He told us that the RiskMarkets team foresees working with Praedicat to develop a market for ‘liability cat bonds’. They have already spoken to primary insurers who are keen to transfer risks such as product liability to the capital markets, and have begun work on indices which could facilitate this risk transfer. He added that while it will take some time for Praedicat to develop the modelling technology to support the analysis of this type of risk, they believe that a complete solution is not that far off.

This is extremely encouraging as liability risks are a growing concern for many re/insurers. Product liability is certainly one area where these types of instruments could be put to work. Other areas that could have potential may be things such as medical liabilities or even pollution liabilities. We’ll be watching this closely to see what results from the new venture.