Allianz report identifies the top causes of claims worldwide
The company analyzed over 530,000 claims from 207 countries to identify the leading drivers of corporate losses.
Identifying emerging and evolving risks in the ever-changing insurance landscape is a little like looking into a crystal ball and trying to see into the future. However, the annual Global Claims Review 2022 from Allianz Global Corporate & Specialty (AGCS) provides a well-documented look at the top loss sources and emerging trends based on claims from more than 200 countries and provides insights on what risks insurers should be monitoring.
Assessing losses
AGCS examined over 530,000 insurance claims from 2017 to 2021 and estimates that insurers have paid an average of €88.7B ($90B) during that period or approximately €48M ($48.7M) per day. Their research also identified 10 specific causes that contributed to almost 75% of the financial losses, with the top three factors comprising 45% of the claims. These include:
- Fire/explosion
- Natural catastrophes
- Faulty workmanship/maintenance
- Aviation collisions & crashes
- Machinery breakdowns
- Defective products
- Shipping incidents
- Damaged goods
- Negligence/misadvice
- Water damage
Fire and explosion (which excludes wildfire damage) accounted for 21% of the losses with significant losses in several countries including: Canada (38%), the Netherlands (20%), the U.K. (24%), Germany (37%), Italy (50%), Spain (21%), Singapore (24%) and South Africa (65%).
AGCS found that over the past five years, there were more than 12,000 fire/explosion claims causing over €18B ($18.29B) in losses and were “responsible for 13 of the 20 largest non-natural catastrophe loss events analyzed” according to the report.
Frank Sapio, regional head of claims, North America for AGCS, provided PropertyCasualty360.com with a little perspective on these losses in a written statement. “Fire/explosion is the biggest cause of loss by value in these countries, mirroring the global results of our claims analysis, and demonstrating that despite recent improvements in fire prevention and risk management, it continues to be a significant risk,” he explained.
“Property damage claims from fires in these countries are becoming more severe with inflation impacting rebuild costs, due to the rising cost of materials, labor, etc. Business interruption is also a major loss driver in the aftermath of a fire incident and these claims continue to be impacted by complex global supply chains that were still recovering from the pandemic and have now been further disrupted by energy price increases and the Ukraine war.”
Sapio added, “Ultimately, the fires that have occurred in these countries have been in industries such as automotive, energy (refineries), manufacturing and pharmaceuticals for example, so when things go wrong, the financial consequences are expensive, as these are industries with large risk exposures, given the value of the products/premises that can be disrupted or damaged.”
Weather & natural catastrophes
Climate change and an increase in significant hurricanes, tornadoes and even events like the ‘Texas Big Freeze’ and flooding in Germany created major losses for insurers as well. Natural catastrophes came in second with an approximate value of €13.7B ($13.9B) in losses based on an analysis of more than 20,000 claims. One of the main drivers of these losses were the Atlantic Hurricane Seasons in 2017 and 2021, which ranked among the most costly and active seasons on record. With the 2022 season also forecast to see above-normal activity, this will continue to be a factor to watch.
In the U.S., 24% of the total losses were due to natural catastrophes and of those claims, 40% originated from hurricanes and tornadoes. When looking at these losses collectively (across the globe), the report found the top five causes: hurricanes/tornadoes/storms (19%), flood (14%), frost/ice/snow (9%), and earthquake/tsunami (6%) comprised 77% of the natural catastrophe claims.
Other loss factors
Coming in at numbers three and four respectively, were faulty workmanship/maintenance incidents (9%), which can include building structure and subsidence issues from defective work or poor manufacturing in products, and aviation collisions and crashes (9%) which include ground-handling incidents as well as emergency landings or over- or under-shooting runways.
At number five, machinery breakdowns (5%) included engine failures. The remaining losses include defective products at number six (5%); shipping incidents (3%) such as sinking or collisions; damaged goods (3%) that involved issues related to handling, loading, unloading or storage; negligence or misadvice (2%), which resulted in indemnity claims; and at number 10, water damage claims (2%).
Sapio says that most of the findings are reasonably consistent with what he would have expected with the exception of the war in Ukraine and the corresponding impact on the risk landscape. “First, I would have never imagined that we would see a major military conflict in Eastern Europe in my career. It was not even a thought on January 1, 2022, when I sat down to ponder what the year would have in store for our industry,” he explained.
“The war has impacted almost every commercial segment of the industry from aviation to D&O, either directly or indirectly. The actions of Russia and the world response via sanctions and aid have also created a ripple effect of uncertainty in an industry that thrives on predictability. It has also shown how interconnected and global we have become not only as an industry but as a society as well.”
He adds, “While AGCS has not seen a significant financial impact from the war and subsequent sanctions, the availability of reinsurance and inflation are issues that will trickle down globally in the form of increased costs as the war rages on. Additionally, the burden of complying with all of the ever-changing sanctions adds complexity and inefficiencies to our operations.”
Focusing on future threats
The Global Claims Review also provides insights on evolving risks insurers and policyholders should watch. Not surprisingly, contingent business interruption claims reached a new level over the past year due to major supply chain disruptions. Cyber claims seem to have stabilized to some extent, but the threats continue to evolve and AGCS has seen more than 1,000 claims a year for the past two years. Ransomware is still a significant threat with year-on-year attacks increasing by 13%.
Other factors to watch include complex construction claims, particularly against architects, engineers, developers and large construction companies. As these projects involve increasing numbers of specialists such as environmental engineers, geologists, metallurgists and design architects, errors in data and other areas can lead to expensive problems and claims. The report finds insurers have seen an increase in claims involving third-party specialists particularly related to designing highways or specialist engineers involved in designing the building envelopes of commercial and residential structures.
Inflation is also a significant driver of the cost of claims. From supply chain breakdowns to the war in Ukraine, these global pressures are affecting everything from the cost of construction materials and technology to new cars and replacement parts. The manufacturing shutdowns along the Pacific Rim during the pandemic have also increased delivery and repair times.
A secondary impact of inflation is the possibility of underinsurance, particularly for commercial claims. Pricing for everything from fuel to supplies and labor will affect reconstruction costs in the event of a disaster.
Insurers have been focusing their attention on environmental, social and governance (ESG) issues, as well as the role of sustainability as policyholders, investors and the public pressure companies to consider their environmental footprint and its impact on the greater good. According to the report, climate-change-related litigation is increasing, affecting companies’ directors and officers liability exposures.
When asked if there are certain aspects of ESG risks insurers should be watching from a claims perspective, Sapio replied, “To me, the D&O exposure is a ‘no win’ for board members. Push environmentally friendly policies that cut into the bottom line and you may draw a lawsuit for mismanagement and the destruction of corporate value. Conversely, if you don’t move as fast as the activist investors want, you may end up in the same place. Organizations will have to walk a fine line when implementing ESG policies, especially with the new reporting requirements that create transparency. Insurers who provided this cover will have to evaluate and manage this risk very carefully and do it over the long haul to be successful.”
As insurers are pushed to evolve and utilize new technology, that growth also creates some risks to consider. “Another area that presents claims concerns are new and untested technologies that are rushed into production in the name of becoming green,” discloses Sapio. “Products that fail to deliver on their promises or prove to be unreliable or even dangerous represent a significant risk to the industry. One just has to look at the history of advancements in battery technology and the ensuing fires and explosions to see the potential pitfalls we face in the future. That said, as a citizen of the earth, I applaud the insurance companies that are forcing a change by no longer insuring risks that are damaging our planet and by providing cover for those industries that are promoting change.”
Many of the risks addressed in the report will continue to evolve in the coming year. Access the full Global Claims Review 2022 report for an in-depth look at the claims factors to watch.
Related: