JOHANNESBURG – Cyber risks and the impact of new technologies will have an increasing influence on the corporate loss landscape in years to come.
However, it is fire and explosion incidents that 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.
- Analysis of more than 470 000 global insurance claims from 2013 to 2018. Largest financial losses come from fires/explosions and aviation incidents. Fire is the second major cause of loss in South Africa
- Faulty workmanship is the top cause of loss for businesses in South Africa
- Majority of corporate insurance claims originate from technical or human factors, accounting for 87 percent of all claims by value
- Property claims are becoming more expensive, with a rising share of business interruption losses.
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 more than 200 countries over the past five years (July 2013 to July 2018) with an approximate value of €58bn (R92.9bn).
The largest financial losses come from fires/explosions, aviation incidents, faulty workmanship/maintenance incidents and storms, which collectively account for more than 50 percent of all claims by total value. More than 75 percent 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.”
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Leading losses in South Africa
Faulty workmanship/maintenance is the top cause of loss in South Africa. When large events do occur, such as that involving expensive production equipment in the oil and gas sector, which means it, cannot be used – significant financial losses can ensue.
Fire is the second major cause of loss, accounting for almost a quarter of the value of all claims (24 percent). Water damage generates the highest number of corporate insurance claims (32 percent), although one in five claims is also related to acts of crime or disorder.
“A decline in infrastructure investment, shortage of skills, and inadequate quality control as well as improper procurement process, may lead to increased faulty workmanship or poor maintenance, which is the main cause of large claims in the country. This could result in common causes of loss such as fire or mechanical breakdown. While these claims may not be the largest in volume, the losses can be significant,” says Heleen Fergusson Head of Claims, AGCS Africa.
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 €1.5bn.
“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 fires and explosions, 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 more than €3m. This is around 39 percent higher than the corresponding average direct property loss €2.2m.
Despite recent record-breaking natural catastrophe loss activity in the US and around the world, a 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 percent 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 – on the ground and in the air – are the second major cause of losses. Increasing repair costs from composite materials and more sophisticated higher value engines on aircrafts are also a factor.
Defective products and faulty workmanship incidents, which account for 14 percent of all claims by value, are the top cause of liability losses for businesses. Photo: Matthews Baloyi/African News Agency (ANA)
Liability trends and InsurTech improvements
Defective products and faulty workmanship incidents, which account for 14 percent of all claims by value, are the top cause of liability losses for businesses. Product liability claims are becoming larger and product recalls are increasing in size. Supply chains in industries such as automotive manufacturing are now more complex. As companies restrict their number of worldwide suppliers, it increases product liability risks for these few suppliers exponentially.
It is estimated that about a third of large corporate liability claims involve litigation with third parties, compared with property insurance where less than 1 percent of claims do on average. The US in particular, has seen a trend towards higher settlements and awards in personal injury cases with some facing high punitive damages as recent verdicts around the chemical glyphosate and talc products demonstrate.
“We are not seeing a rise in the frequency of liability claims but the value of claims has been rising with higher awards and rising legal costs,” says Peter Oenning, Liability Claims Specialist at AGCS. “We are also seeing much larger claims in Latin America and Asia than in the past. Once, nine out of 10 large claims globally would have come from the US, now it is more like seven out of 10.”
Analysis also shows that insurers have paid on average €32m 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 uses satellite imagery and drones, providing faster loss estimates that enable better allocation of resources and earlier claims payments.
The report provides loss breakdown statistics for 13 countries and analyzes claims patterns across various industries such as aviation, shipping and energy as well as insurance lines of businesses such as property, engineering, liability and financial lines.