The potential for more expensive liability losses is increasing, particularly in relation to global product recalls, corporate liability, cyber and environmental incidents, according to a new report by Allianz Global Corporate & Specialty (“AGCS”). The report, Global Claims Review: Liability in Focus, identified defective product or work, crash, and human error incidents as the largest causes of liability loss for businesses, based on analysis of insurance claims.
“Liability losses are ubiquitous and can range from minor incidents to major disasters, always causing third party damage or injury,” said Alexander Mack, an AGCS board member and chief claims officer. “The risk landscape for companies is constantly shifting with liability risks on the rise globally. New technologies such as the Internet of Things, autonomous mobility, or 3D printing will create fundamentally new liability scenarios for companies in almost every sector.”
The AGCS Global Claims Review analyzed over 100,000 corporate liability insurance claims from more than 100 countries, with a total value of $9.3 billlion, paid by AGCS and other insurers, between 2011 and 2016. Over 80 percent of losses arose from 10 causes.
According to AGCS, the top 10 global causes of liability loss by total value of claims were:
1 Defective product/work
2 Collision/crash
3 Human error
4 Accidental nature/damage
5 Slips/falls/falling objects
6 Water/fire/smoke damage
7 Environmental damage
8 Natural hazards
9 Vandalism/terrorism
10 Property damage
The AGCS report found that the impact of a defective product or work was the largest cause of loss, accounting for almost a quarter of the value of all claims (23 percent). The average loss cost businesses in excess of $280,000 with the cost of product recalls being a major driver.
“The number of recalls has been steadily rising with increased focus on product and workplace safety, as well as more proactive regulation,” said Larry Crotser, the head of the AGCS chief claims office for North America.
Significant improvements in automotive and aviation safety may have reduced the number of collisions and crashes in recent years, AGCS acknowledged, but these still were a major driver of liability losses, accounting for more than a fifth of the value of all claims (22 percent), as well as generating the most claims. Human error (19 percent) was the third top cause of loss, driven by incidents that resulted in major losses, such as aviation and shipping events or employee injury.
Losses in excess of $1 billion have become more commonplace and no longer are confined to the U.S. and Europe, as regulators become tougher, supply chains more complex, and U.S.-style litigation and compensation awareness spread around the globe, AGCS found.
The U.S. continues to be the world's largest liability market, generating both the highest number of claims, and many of the largest claims according to value. While class actions by consumers and investors remain largely a U.S. affair, a growing number of countries now also allow for collective actions. Conversely, foreign companies are increasingly being sued in the U.S., AGCS noted.
AGCS added that digitalization and growing use of new technologies are likely to lead to a further shift in the liability risk landscape. Overall, the frequency of claims is expected to decline as trends such as autonomous driving improve road safety. However, technology also will bring new liability threats such as increasing cyber, product liability, and recall risk, in the view of AGCS.
Automation is likely to lead to increased product liability risk for machinery and component manufacturers and software providers. New data protection laws around misuse or breaches of data will increase cyber liability for companies, potentially resulting in heavy fines and penalties, particularly in Europe from 2018, but also elsewhere, AGCS said.
According to AGCS, nearly two percent of claims analyzed involved animals. Deer incidents, particularly involving collisions with cars, accounted for 58 percent of animal-related liability claims and cost in excess of $4,225per incident.
Bedbug/insect incidents accounted for almost 30 percent of animal-related liability claims received by insurers, with the number of bedbug incidents on the rise in the United States. Although bed bugs are found year-round, infestations and incidents peaked during warmer months (April to August).
Learn more: AGCS report; www.agcs.allianz.com.
Victoria Spears
Victoria Prussen Spears is senior vice president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. A graduate of Sarah Lawrence College and Brooklyn Law School, Ms. Spears was an attorney at a leading New York City law firm before joining Meyerowitz Communications. She may be contacted at [email protected].