Top causes of loss by value of insurance claims in South Africa were fires that generated the most expensive losses for South African businesses accounting for more than 60 percent of the value of all claims over the past five years, according to the insurance company Allianz Global Corporate & Specialty’s (AGCS) Global Claims Review 2022.
But globally over the the past five years, fire and explosion, natural catastrophes and faulty workmanship or maintenance have been the major causes of loss by value of insurance claims.
In South Africa faulty workmanship incidents were another major cause of loss (20 percent) while natural catastrophes rank third, with storm losses the most frequent driver of these claims. Hailstorm events, while uncommon, could be costly when they do occur if one happens in a metropolitan area. Water damage generated the highest number of corporate insurance claims in South Africa (30 percent plus), although one in five claims also result from crime/wilful acts.
Lulu Pule, AGCS‘s head of said claims in South Africa, said, “South Africa experienced three major claims events in the past three years. Covid-19 business interruption following the nationwide hard lockdown as well as civil unrest and flooding.
“It’s no surprise to see fire, natural catastrophe, storm and water damage accounting for the majority of the value of all claims in the country. Faulty workmanship incidents are another major cause of loss,” Pule said.
AGCS chief claims officer and board member Thomas Sepp said this week that the insurance claims from companies had become more severe over the past five years due to factors such as: higher property and asset values, more complex supply chains and the growing concentration of exposures in one location, such as in natural catastrophe-prone areas.
“The future does not look brighter anytime soon. Companies and their insurers have shown resilience to weather the loss impact of the pandemic, but the ongoing war in Ukraine, a spike in the cost and frequency of business interruption losses and the sustained elevated level of cyber claims are creating new challenges.
“At the same time, the top two causes of claims, fires and natural hazards, remain significant loss drivers for companies. Last but not least, the impact of soaring inflation around the world will bring further pressure on claims costs,” Sepp said.
Ultimately, inflation brought pressure on claims costs from multiple angles. Property and construction insurance claims, in particular, were exposed to higher inflation, as rebuilds and repairs were linked to the cost of materials and labour, while shortages and longer delivery times inflate business interruption (BI) values, the review found.
Other lines of insurance, such as directors and officers, professional indemnity and general liability, were also susceptible to inflationary pressures through rising legal defence costs and higher settlements.
Sepp said replacement costs more and took longer, which meant that both the property damage and the business interruption loss were likely to be significantly higher.
In the top causes of business insurance claims globally, in one of the industry’s most comprehensive analyses, AGCS identified the top causes of loss for companies from more than 530 000 insurance claims in more than 200 countries and territories that it had been involved with between 2017 and 2021 (typically a number of insurers provide coverage jointly considering the huge values at stake in the corporate sector). These claims had an approximate value of €88.7 billion (R1.5 trillion), which meant that the insurance companies involved had paid out – on average – over €48m every day for five years to cover losses.
The analysis shows that almost 75 percent of financial losses arose from the top 10 causes of loss, while the top three causes account for close to half (45 percent) of the value. Despite improvements in risk management and fire prevention, fire/explosion (excluding wildfires) was the largest single identified cause of corporate insurance losses, accounting for 21 percent of the value of all claims.
Fires resulted in more than €18bn worth of insurance claims over five years, according to the analysis. Even the average claim totalled around €1.5m. Natural catastrophes (15 percent) ranked as the second top cause of loss globally by value of claims. Collectively, the top five causes (based on more than 20 000 claims around the world) – hurricanes/tornados (29 percent); storm (19 percent); floods (14 percent); frost/ice/snow (9 percent) and earthquake/tsunami (6 percent) account for 77 percent of the value of all disaster claims.
Hurricanes and tornadoes were the most expensive cause of loss, driven by the fact that two of the past five Atlantic hurricane seasons (2017 and 2021) now ranked among the three most active and costliest on record, as well as recent record-breaking tornado activity.
Faulty workmanship/maintenance incidents are the third top cause of loss overall (accounting for 9 percent by value) and were also the second most frequent driver of claims (accounting for 7 percent by number, ranking only behind damaged goods with 11 percent). Costly incidents could include collapse of building/structure/subsidence from faulty work, faulty manufacturing of products/components or incorrect design.
The other top 10 causes of loss were aviation collision/crash (#4; 9 percent), machinery breakdown (#5; 5 percent), defective product (#6; 5 percent), shipping incidents (#7; 3 percent), damaged goods (#8; 3 percent), negligence/misadvice (#9; 2 percent) and water damage (#10; 2 percent).
The claims analysis also highlights the growing relevance of BI as a consequence of losses in property insurance, and the fact that CBI claims have reached a new high over the past year. Costs associated with the impact of BI following the aftermath of a loss can significantly add to the final bill from an incident. The average BI property insurance claim now totals in excess of €3.8m compared with €3.1m five years ago. For large claims (€5m), the average property insurance claim, which includes a BI component, was more than double that of the average property damage claim.
While not appearing in the top 10 causes of loss, the number of cyber claims had significantly increased over the past few years, driven by the rise of threats such as ransomware attacks, but also reflecting the growth of cyber insurance.
Meanwhile, AGCS said Russia’s invasion of Ukraine was likely to result in a significant, yet manageable, loss for the global insurance industry.
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