 | Dr. Robert T. Reville is the CEO and cofounder of Praedicat, the liability risk analytics company. Praedicat’s risk models are used for underwriting and risk management by leading P&C insurers and global industrials. Prior to co-founding Praedicat, Bob was Senior Economist at the RAND Corporation, where he conceived and led an R&D project mining the text of peer-reviewed science to identify emerging "next asbestos" risks. The project provided the foundation for Praedicat and Bob traded policy research for start-up life. Bob's research career focused on liability, risk and insurance. He was the Director of the RAND Institute for Civil Justice, a liability research center which published influential research on asbestos; and co-director of the RAND Center for Terrorism Risk Management Policy, which published research on terrorism insurance that was cited in congressional debates over the Terrorism Risk Insurance Act. Bob has also written over a dozen studies on workers' compensation. He received his Ph.D. in economics from Brown University. |
Here is the interview transcript:
Insurance Thought Leadership
Congratulations again on being a finalist for the Global Innovation Award. I thought I'd start out by asking you to tell us a bit about what you've been doing at Praedicat.
Robert Reville
Sure. Well, thank you for having us here and for the honor of being a finalist. Praedicat is a liability emerging risk analytics company. We started calling ourselves a casualty catastrophe modeling company back in 2012, and we quickly learned that the industry didn't really understand what casualty catastrophe was. When we explained what it was, that we were an emerging risk modeling company, they said, Oh, well, that makes sense.
We stopped calling ourselves casualty catastrophe back then, though we are returning to it now. Essentially, what we do is we identify emerging risks early, ideally seven to 10 years before litigation can even start. We do it by using AI on scientific literatures. We're trying to find where a scientist is hypothesizing in journal articles that some chemical or product or business activity results in bodily injury or environmental damage. We then we track the science as it evolves into a literature that can potentially be used in litigation as scientific evidence.
Once the science gets to a certain critical mass, we model the potential litigation that could emerge. We convert the model into company profiles, and we sell it as a SaaS [software as a service] product to insurers, who use it for underwriting, exposure management and, increasingly, for informing pricing and reserving and the like.
Insurance Thought Leadership
You had some pretty impressive examples of how many years you were ahead of a number of issues that are cropping up, like talcum powder. Do you want to talk about a few of those?
Robert Reville
Sure. When we were first launching our product, which was in 2013, the system already had in it the PFAS chemicals and talc and Roundup and chlorpyrifos. All of those are in litigation today, but the litigation started really after we launched. And every mass litigation that has started since 2013, when we launched our product, was in our system before the litigation began.
Some of them were completely off the radar screen of the industry. Sometimes, there's already a certain amount of buzz around something, and it, you could argue, is not that hard to catch. But there were some things that we caught that no one was thinking about, and then litigation started shortly thereafter. And we were found to really have delivered some useful early warnings.
Insurance Thought Leadership
There were a couple you mentioned that I'm curious about, that you say are in the pre-litigation phase now. There's one whose name I can't pronounce: phthalates.
Robert Reville
Right.
Insurance Thought Leadership
You'll say it right. And microplastics. I wonder if you could talk a little bit about those.
Robert Reville
Sure. Phthalates is a chemical that is an additive to plastics, typically added to polyvinyl chloride, which I think is possibly the most widely used plastic. It essentially makes polyvinyl chloride softer and flexible. So it's used in medical tubing. It's used in toys, things like rubber duckies. It's used in food packaging. It's used in all kinds of consumer packaging.
It's so widely used, in fact, that it recently started to be called the everywhere chemical. Everybody is talking about forever chemicals for the PFAS. The everywhere chemicals are the phthalates.
Recently, at the end of 2022, litigation started over hair relaxers, alleging that people who have their hair straightened frequently, that the chemicals that are put on their scalp, that they get into the bloodstream and can lead to uterine cancer. The scientific literature around these hair relaxers is pretty small, probably not strong enough to support litigation, but the plaintiffs’ attorneys have put in their complaints about the ingredients that go into the hair relaxers, and the number one ingredient that they highlight is phthalates.
What the plaintiffs are arguing is that it's the phthalates in the hair relaxers that cause the uterine cancer. The science is a little bit stronger about that than it is about the hair relaxers themselves.
Insurance Thought Leadership
To probe a little bit on that. When you spot something like this, insurance companies are buying this information from you, and they're changing how they underwrite? Or what exactly happens once you identify a problem like this potential one?
Robert Reville
When an insurance company works with us, the first thing they normally do is they take their casualty book of business and they enter it into our system. We model it, and we identify the exposure to all of the emerging risks in their portfolio.
A typical situation would be, let's say, a particular company runs their model, and we find that the number one emerging risk in their portfolio is phthalates. At that point, they'd say, Oh, we need to control our total exposure to phthalates. So they develop an underwriting strategy that says, Well, if it's a chemical company, then we don't want to write that any more.
Then if there’s a downstream user of the chemical, such as a metal tubing manufacturer, we have a referral process. We want to evaluate the way the company handles the chemical, and then we want to control our total aggregations.
All that data flows into an underwriting strategy, and then the underwriters at the company will follow the instructions that go with the strategy. So they have a new submission or a renewal, and they call up [the instructions]. They see that there's exposure to phthalates. There's either an exclusion required or a referral, and then when [a policy] is actually written, it goes into the exposure management system to control the total aggregation. That's an example.
Insurance Thought Leadership
Okay. So I cut you off. You were saying….
Robert Reville
Well, I was about to say that the question on phthalates in hair relaxers is, if the science has accepted that the phthalates are causing the uterine cancer, then what we expect is that it'll spread from hair relaxers to all these other uses. Then we'll have a full-on, everywhere chemical litigation that's happening at the same time we have the forever chemical litigation. That's potentially a worrisome situation for casualty insurance.
Insurance Thought Leadership
Okay. And then microplastics?
Robert Reville
Microplastics are the breakdown particles as plastics degrade in the environment. And, as I mentioned, we track science from the time of the early studies as an early warning system. The literature around microplastics has grown faster than any literature we have been tracking since the beginning of Praedicat. There are now about 15,000 studies published that are examining the impact of microplastics in the environment, the way in which microplastics can enter the body, the way in which they're carried by weather around the globe, where they go once they enter the body, how they end up in the brain.
Recently, there was a study that actually was looking at how microplastics, which are in the atmosphere primarily in urban areas because of tires -- they come off of tires – actually attract water vapor at different temperatures than clouds normally form at. They start to form clouds and can change weather patterns.
The extent of impact of microplastics in the environment is so great that the potential avenues for litigation being identified in the scientific literature are pretty enormous. We think the impact could come out in many different ways and are working with our clients around exactly how to think about where the exposures might be. There has been some litigation, nothing insurance-relevant yet, but consumer litigation and the like. We are seeing 65 cases in the U.S. courts right now…. We can start to get a sense of who the defendants might be and start to work with our clients early on what their total exposure might be.
Insurance Thought Leadership
That's fascinating. Any other things we ought to be watching for?
Robert Reville
Well, we have 300 in our system.
I would say that another area that is worth talking about is generally climate. Climate is an area where there has been some litigation. In particular, there are about 50 cases in the U.S. courts, typically brought by states’ attorneys general, and they are alleging that, typically, oil and gas companies have caused climate change. Those cases are really the first wave of potential litigation over climate. And when we say climate, we expect there's going to be potentially litigation over what caused climate change. That may also be followed by litigation over failure to protect against the consequences of climate change. We've already seen some of this.
I'll give you a quick example, though, of the kinds of unexpected things that will happen as a result of climate change. The scientific literature, in the mid-2010s, about 2015 or 2016, started to identify this issue that increasing droughts and increasing heat were causing concentrations of arsenic in soil. Rice plants tend to pick up the arsenic from the soil, and so some scientists started to argue that because of the fact that baby food uses rice as its backbone, that there would be litigation over elevated levels of arsenic in rice in baby food. We actually caught that literature and highlighted it to our clients before the litigation began. Then in 2021, a congressional report came out looking at heavy metals in baby food, specifically identifying elevated levels of arsenic, and the litigation was off to the races.
It's still going on. There are, I think, both baby food manufacturers and retailers named as defendants. There are, I think, over 100 defendants so far, thousands of cases, and we'll see where it goes. But the interesting thing is all that was caused essentially by the changes in the environment from climate change.
You could argue that's the first product liability that resulted from climate change. Those kinds of things, we expect to see more of.
We're also doing a lot of work on potential liability consequences after urban heat waves. Scientists have argued that in coming years the potential is for there to be heat waves that are worse than anything we've ever seen. If combined with blackouts, there could be a large amount of deaths in urban areas. Given those types of models, we have looked at the potential liability consequences for companies that would arguably have been responsible for taking care of vulnerable parties. So nursing homes, schools, day cares, etc., also habitational real estate.
This is a phenomenon that hasn't yet happened, but it's worth working through the liability consequences, given the projections coming from the climate scientists.
Insurance Thought Leadership
Great. A bunch more reasons for me not to sleep at night.
Thanks for taking the time. Congratulations on being a finalist, and I'll be fascinated to follow your work.
Robert Reville
My pleasure.
