Fire and explosion incidents cause the largest claims for insurers and the businesses they cover, according to new research from Allianz Global Corporate & Specialty (AGCS). The vast majority of corporate insurance claims originate from technical or human factors despite natural catastrophes such as hurricanes, having caused devastating losses over the past two years.
In its latest Global Claims Review, AGCS reveals the top causes of claims in the corporate insurance segment based on an analysis of 470,000 claims from over 200 countries over the past five years (July 2013 to July 2018) with an approximate value of €58bn (US$66.5bn).
The largest financial losses come from fires/explosions, aviation incidents, faulty workmanship/maintenance incidents and storms, which collectively account for over 50% of all claims by total value. Over 75% of financial losses globally arise from 10 major causes of loss.
“The report highlights the increasingly high values at risk for businesses and their insurers alike,” says Philipp Cremer, Global Head of Claims, AGCS. “In today’s interconnected and globalized business environment, financial losses are increasing due to geographical concentration of values – often in risk-exposed areas – and from the knock-on effects of global supply chains and networks. Looking to the future, new technologies bring business benefits but also risks and claims. However, they also provide an opportunity to prevent and mitigate losses and improve the claims settlement process for our customers.”
Exposures increasing in Asia Pacific
Asia Pacific accounts for 17% of total value of claims globally at almost €10billion, and 6% of total claims by number globally.
In particular, financial lines and liability claims in the region are increasing in size and frequency as regulators step up their activities, introduce tougher environmental and consumer protection regulation and with growing public awareness of rights to compensation.
“For D&O and professional indemnity insurance across the region, we see more intense regulatory enforcements in Asia markets that do not always follow US or European understanding of law. Australia, in particular has experienced a sharp rise in D&O activity in recent years, caused by more litigation. Class action lawsuits and more litigation funders have made Australia one of the most litigious countries outside the US,” says Stephan Kammertoens, Financial Lines Claims Specialist at AGCS.
The frequency of liability claims in Asia has also been increasing in Asia. “During Q1 2017, AGCS had some 800 pending liability claims in Asia, which has risen to 1,300 by Q2, 2018,” says Peter Oenning, Liability Claims Specialist at AGCS. “We are also seeing much larger claims in Asia than previously. Once 9 out of 10 large claims globally AGCS would have seen would have come from the US. Now it’s more like 7 in 10, reflecting greater activity in Asia. As companies have become more global and more Asian companies operate in the US, the chances of being involved in litigation have increased.”
More expensive fires and aviation repairs
Over the past five years fire and explosion incidents have caused in excess of €14bn worth of losses and are responsible for more than half (11) of the 20 largest non-natural catastrophe events analyzed. The average claim is almost €1.5mn.
Fire is the top cause of loss in China, accounting for 65% of all claims in China by value, due to large industrial blazes, such as the 2015 Tianjin explosions which severely disrupted the port and container storage stations and impacted multiple businesses.
“In general, property insurance claims are higher with inflation and greater concentration in value as a result of globalization and more integrated supply chains,” explains Raymond Hogendoorn, Property and Engineering Claims Specialist at AGCS. “As manufacturers have become more efficient, the values per square meter have risen exponentially. Fire and flood claims are much more expensive per square meter than a decade ago.”
Costs associated with the impact of business interruption (BI) can significantly add to the final loss total from fire and explosion incidents, as well as many of the other major causes of loss identified in the report. Almost all large property insurance claims now include a major BI element: The average BI property insurance claim now totals €3.1mn,around 39% higher than the corresponding average direct property loss (€2.2mn).
Despite recent record-breaking natural catastrophe loss activity around the world, storm is the only natural catastrophe event to appear in the top 10 causes of loss. Analysis shows corporate insurance claims typically originate from technical or human factors – or non-natural catastrophe events – accounting for 87% of all claims by value.
The global aviation industry recently experienced its safest year ever but claims activity shows no sign of abating. Aviation collision/crash incidents – both ground and air – are the second major cause of losses globally and is the the top cause of loss in Australia accounting for almost a third of value of claims. Increasing repair costs from composite materials and more sophisticated higher value engines on aircrafts are also a factor.
Liability trends and InsurTech improvements
Defective products and faulty workmanship incidents, which account for 14% of all claims by value, are the top cause of liability losses for businesses. In Singapore, faulty workmanship incidents are responsible for almost 60% of the value of corporate insurance losses. Supply chains in industries like automotive manufacturing are becoming more complex, leading to larger product recalls and corresponding product liability claims. Measures by companies to restrict their number of worldwide suppliers further increase exponentially product liability risks for these few suppliers.
It is estimated that around a third of large corporate liability claims involve litigation with third parties, compared with property insurance where less than 1% of claims do on average.
Analysis also shows that insurers have paid on average €32mn a day over the past five years to cover losses – AGCS alone paid €4.8bn to its insureds in 2017. Insurers are increasingly adopting innovative technologies to improve the claims handling process. Machine learning and robotics can speed up the claims process for low-value, high-frequency claims. To quickly assess wind or flood damage following natural catastrophes, AGCS utilizes satellite imagery and drones, providing faster loss estimates that enable better allocation of resources and earlier claims payments.