Coverage gap in US casualty means growth opportunity

A coverage gap in the US casualty market means opportunities for specialists in that sector able to capitalise on predicted growth in the years to come, Robert Reville, chief executive of Praedicat, told Monte Carlo Today.

He notes that in 1973, 94 percent of all US commercial tort costs were insured. Fast-forward to 2012, and that number dropped to 57 percent, and suggests that represents an approximately $90 billion annual growth opportunity in the US casualty markets, and a $15 billion annual named peril casualty reinsurance market.

“We see big opportunities for expansion in US casualty,” Reville said. “We aim to help the casualty insurance and reinsurance markets grow profitably and to address a growing coverage gap in casualty insurance.

“Our strategy is to change the way insurers manage and transfer large-scale casualty risk, from an ‘all perils with exclusions’ mindset (where large-scale casualty risks are often excluded), to one where large-scale risks are covered on a named peril basis, while aggregations are managed and transferred to reinsurance and capital markets on a named peril basis.”

Praedicat believes the coverage gap is due, primarily, to the inability to identify, manage and transfer large-scale casualty risk and the resulting need to exclude and limit. With the recent growth in US litigation, the corresponding increase in third party litigation funding, and an explosion of new science exploring harms from commercial activity, it sees the environment in US casualty markets changing markedly with increased demand for coverage.

“This is a huge growth opportunity in an already established market, if managed appropriately.

“For Praedicat, we also expect growth in our corporate industrial market, and in the expansion to other lines of casualty insurance, which suffer from similar difficulties transferring large-scale risk,” Reville concluded.