The Brattle Group has experience with many aspects of the insurance industry, including insurance claim valuation and auditing, rate-setting, evaluation of financial and taxation requirements, and participation in mediation and litigation. We combine our insurance industry knowledge with our expertise in economics, finance, statistics, decision theory, and engineering to solve complex analytical problems unique to the industry.
The Brattle Group values insurance for claims related to environmental remediation and product liability. We have extensive knowledge of asbestos, construction, pharmaceutical and medical device, lead, toxic tort, labor/employment, intellectual property, and other mass tort actions. Our work has involved the estimation of past and future costs, including the economic analysis of large claims databases and the development of statistically valid claims audits. We also address the allocation of indemnity and defense costs to available coverage under various trigger, occurrence, and allocation theories. We assist in the resolution of claim demands in mediation and provide expert testimony at trial.
Regulation of Property and Casualty Rates
Members of The Brattle Group have been involved with property and casualty insurance ratemaking processes since the 1980s. For example, Stewart C. Myers of the Massachusetts Institute of Technology and a principal of The Brattle Group, co-developed the Myers-Cohn model to determine the fair return on insurance capital invested in support of automobile and workers compensation policies in Massachusetts.
The Myers-Cohn model assesses the fair premium with a policy-level, balance-sheet approach: the fair premium is set equal to the sum of (1) the present value of losses and expenses, and (2) the present value of the taxes on the insurer’s underwriting and investment income. The present value of the tax liabilities on investment income from a risky portfolio is independent of the risk level, and depends only on the portfolio tax rate and the risk-free rate (Myers’ Theorem).
Finance and Taxation
We evaluate taxation methods in order to assist in finance disputes, including the economic analysis of fair taxation and capital requirements on behalf of clients.
In a bankruptcy case, we evaluated a historical asbestos claims database and audited select claims files. We critiqued plaintiff claims forecasts and developed an independent analysis of the magnitude and timing of future claims. We then allocated future claims to available coverage under potential trigger and allocation scenarios, and assisted the carrier group with litigation risk analysis.
In cases involving products and non-products asbestos liabilities, we have applied statistical approaches to data on exposed populations, claim experience by disease type, and settlement experience to develop estimates of the number, timing, type, and value of current and future claims. We have critiqued the standard asbestos projection methodologies used by other experts. We have allocated claims to insurance hierarchies under various allocation methodologies and other approaches, and participated in settlement negotiations. We also have designed statistically valid audits for the review of claims files.
We developed detailed cost estimates for over 40 contaminated sites used to manufacture heavy equipment. We conducted insurance valuation assessments under several potential forums, including the states in which the sites were located, the state in which the company was headquartered, and the state in which the insurance policies were signed. The results valued alternative strategies for settling or litigating the claims.
Members of The Brattle Group estimated costs for more than 350 environmental sites related to a manufacturer of consumer products, chemicals, and industrial equipment. This effort involved classifying the sites into distinct categories (e.g., offsite landfill, river sediments, and certain types of manufacturing facilities) and developing costing algorithms. We created expected value cost estimates for 12 “test” sites using detailed decision trees that incorporated the likelihoods and costs of all reasonably possible remedial outcomes. This led to a total remedial cost estimate of more than $1 billion that was supported with more than six days of testimony at insurance arbitration hearings.
On behalf of a carrier involved in settlement negotiations, The Brattle Group conducted statistical and decision-analytic modeling to value potential indemnity and defense claims associated with a medical device. We evaluated the total potential exposed population using sales and market share information. We developed a database of the exposed population by age, geographic location, dates of exposure, and potential claims types from medical studies. We valued each claim type using historical information on claims filing rates and settlement/verdict amounts. We forecasted potential future claims by aging the exposed population over time in a cohort analysis. We then allocated forecasted claims to available coverage to determine the timing and magnitude of likely future indemnity and defense claims. Using our analysis, the carrier arrived at a successful settlement.
We evaluated potential insurance recovery related to approximately 30 known organic chemical manufacturing sites as well as bodily injury claims for employees and contractors exposed to asbestos during a period dating back to the 1940s. We worked extensively with company employees and contractors at numerous locations to gather, document, and calculate past costs. Our engineering staff worked with company employees and contractors to develop year-by-year estimates of future costs. In addition, we assessed the number, timing, types, and costs of future asbestos claims and assessed trends in the settlement and defense costs of asbestos claims of different types (e.g., asbestosis, mesothelioma, lung cancer).
The Brattle Group has conducted numerous insurance valuations related to utilities, including manufactured gas plant (MGP) sites and sites contaminated with PCB and mercury. For example, we evaluated future costs at a utility with more than 50 problem sites. We assessed expected recovery by carrier and participated in settlement negotiations.
Members of The Brattle Group studied the theory of taxation of policyholder-funded investments in mutual insurance companies (“mutuals”). The issue was whether stock and mutual companies were fairly taxed relative to one another. The Brattle Group showed that a consistently applied prepayment system could give mutuals systematic advantages over stock companies.
Members of The Brattle Group have evaluated the capital requirements of insurance companies that write policies in diverse areas. The result was a prize-winning paper on the topic by Stewart C. Myers and James A. Read, Jr., “Capital Allocation for Insurance Companies,” published in the Journal of Risk and Insurance in January 2002. The paper received awards from the Casualty Actuarial Society and ACIA (Robert C. Witt Research award) for best paper published in the Journal of Risk and Insurance in 2002.
We consulted to a large Midwestern utility in a tax-related dispute concerning the purchase of corporate owned life insurance (COLI) to finance employees’ post-retirement benefits. Our analysis demonstrated that COLI evolved logically from the many tax-advantaged financial instruments corporations use on a regular basis, and that COLI was not a tax scam.
Funded by MetLife, Inc.
A whitepaper discussing the role of life insurance as a critical driver of economic growth that helps provide stability for the U.S. economy while delivering financial protection to millions of American families.