New Research RFP Seeks to Quantify Reinsurance Costs from Social Inflation

The Casualty Actuarial Society’s (CAS) Reinsurance Working Group is offering up to $75,000 for a research project that advances the quantitative estimation and prediction of specific aspects of social inflation for at least one insurance line. Proposals are due Monday, January 27, 2025.

Research Problem Description

Social inflation describes several potential cost drivers in insurance claims. Identifying and quantifying cost drivers attempts to explain why liability claim sizes are growing much faster than other economic indicators, such as consumer inflation. Various theories have been proposed to account for claim size growth, such as, litigation patterns, methods used by the plaintiffs' bar, third-party litigation funding and changes in public sentiment. A significant class of these cost drivers can also be considered legal system abuse. The degree to which each contributes is unknown and sometimes disputed.

While there has been considerable research on social inflation overall, more inquiry is necessary to isolate and quantify individual factors contributing to social inflation, such as predicting the future rate of change per factor or determining how legislative changes may curtail or exacerbate individual factors. Further complicating actuarial analysis is that these effects may not be strictly proportional to size of claim. Because insurance policies are written across a range of states, policyholder types, and limit sizes, reinsurers and reinsurance actuaries are particularly interested in better understanding how the largest claims are growing.

Research on large lines by premium such as general liability or auto liability is preferred over small lines like cyber liability or construction defect. Papers may focus on one or more facets of social inflation, but the results should be both specific and defined. Any parameter estimations should include values for the most recent 10 years or more. Tests that include holdout or reserves datasets are preferred; test performance with a holdout dataset should be included.

Example projects may include, but are not limited to, the following:

• Evaluating the effectiveness of tort caps in mitigating claims growth by assessing how claim sizes differ by state and by tort cap. This may include investigating the rate at which claims circumvent tort caps by seeking redress in federal courts and how this influences claim size over time.
• Assessing how claim size is increasing based on size of claim, such as looking at movement of settlement sizes over time limited to various values between $500K and $100M.
• Quantifying the effects of third-party litigation by comparing claims sizes in states that do and do not allow third-party litigation funding, controlling for other factors. Natural experiments may exist where a state has recently banned or allowed third-party litigation funding or made similar policy changes.
• Considering and quantifying other factors that are classified as legal system abuse, such as plaintiffs’ willingness to settle and the mix of jury versus bench trials, and how these factors specifically influence claim size.

Many of these lines of inquiry require data that is either expensive to access or may require considerable work to collect. Because of this, the funds being made available are considerably larger than the CAS Reinsurance Working Group’s usual requests for proposals. Depending on the type of research, the CAS can provide access to S&P and other datasets.

Proposal Requirements

Researcher(s) should be able to develop practical methods and tools that address the challenges involved in pricing policies subject to social inflation for reinsurers, excess insurers or both. The ideal candidate will furnish models or develop trend estimates or both and provide understandable technical recommendations.

Methods should have sound mathematical foundations, rooted in established principles of actuarial standards. The project’s results produced must be quantitative and usable. Researchers should provide specific point estimates for factors and some indication of variability around each point.

Code or sample worksheets that may be used to generate any quantitative estimates should also be provided so that users of the work product are able to follow the calculations, audit the code, and adjust priors as needed.

Moreover, methods and processes should be explainable to insurance industry decision makers who may not have the experience or education of the actuary implementing the testing or integrating industry benchmarks. In addition to producing a research paper that will be published by the CAS, the selected researchers should also deliver an executive summary of the paper (two to three pages) that would be suitable as a blog post or magazine article. This summary should highlight the key themes of the paper and be understandable by a nontechnical audience.

Submitting Proposals

Proposals should include a clear outline of the work that will be performed and corresponding time frame to meet the final deadline of Monday, October 6, 2025. The proposal should be accompanied by the resumes of the researcher(s), indicating how their backgrounds, education, and experience bear on their qualifications to undertake the research. The $75,000 project funding includes money to acquire or license necessary data.

The CAS contract will be awarded to the respondent who, in the judgment of the CAS Reinsurance Working Group and entirely based on the written proposal, is best able to perform the work as specified herein. If the group determines that no proposal meets the requirements of the RFP, no contract will be awarded. Interested parties are welcome to submit questions about the RFP before the proposal deadline of Monday, January 27, 2025.

Interested researchers should submit their proposals and any questions to Annmarie Geddes Baribeau, CAS research manager and copy Elizabeth Smith, CAS director of publications and research, by Monday, January 27, 2025. Proposal submissions should write “Reinsurance RFP Proposal” in the subject line.

Receipt of proposals will be acknowledged in a timely manner. Respondents who are not awarded the contract will be informed shortly thereafter.

Compensation

Compensation to researchers will be commensurate with the time required to carry out the work.

Many of these lines of inquiry require data that is either expensive to access or may require considerable work to collect. Because of this, the funds being made available are considerably larger than the CAS Reinsurance Working Group’s usual requests for proposals. Depending on the type of research, the CAS can provide access to S&P and other datasets.

Respondents should include an estimate of cost in their proposals, including furnishing or producing datasets. The total cost should not exceed $75,000. Authors must report use of artificial intelligence, if any, while producing research. Authors will be required to upload their final paper electronically in the CAS’s Scholar One system.

Presentation, Ownership and Publication of Report

As a condition of selection, the CAS requires that all rights, title, and interest, including copyright and patent, in and to the report be owned by the CAS. The selected researcher/research team must sign a formal research agreement that assigns all such rights to the CAS. In any publication of the report, the researcher(s) will receive appropriate authorship credit. The CAS may publish the report in its entirety, or any sections thereof, in any format and medium as it finds fit, including, but not limited to CAS publications, and electronic versions on its website or physical storage media. To aid research adoption, the final work product’s code and data will also be placed in the CAS’s GitHub repository, https://github.com/casact, under the MPL2.0 license.

The researcher(s) should make every effort to be available to present the report at a CAS meeting or seminar.

Timeline

About the Casualty Actuarial Society (CAS)

The CAS was organized in 1914 as a professional society for the promotion of actuarial and statistical science as applied to insurance other than life insurance, such as automobile, liability other than automobile, workers compensation, fire, homeowners, commercial multiple peril, and others. Such promotion is accomplished by communication with those affected by insurance, presentation and discussion of papers, attendance at seminars and workshops, collection of a library, research, and other means. The membership of the CAS includes over 10,000 actuaries worldwide, employed by insurance companies, industry advisory organizations, national brokers, accounting firms, educational institutions, state insurance departments, the federal government and independent consultants.

About the Reinsurance Working Group

The Reinsurance Working Group addresses actuarial issues related to property and casualty ceded and assumed reinsurance. The group's charge includes furthering the development and dissemination of actuarial practice, theory, and principles of reinsurance; identifying topics for research and discussion; monitoring professional developments and regulatory activities; establishing liaisons with other organizations working in this area; and sponsoring panels, seminars and other public forums on reinsurance issues.