London, UK (Mar. 31, 2017) – A defective product is recalled around the world. Human error results in a major shipping incident. Credit card data is stolen in a cyber attack. A dam collapses causing significant damage to the environment: Modern corporate liability exposures can arise from a growing number of sources and have the potential to result in larger and more complex losses for businesses than ever before, warns Allianz Global Corporate & Specialty (AGCS) in a new report Global Claims Review: Liability in Focus.
The report identifies defective product or work, crash and human error incidents as the largest causes of liability loss for businesses, based on analysis of insurance claims.
While ‘everyday’ liability claims like slips and falls or workplace incidents have been reducing due to more stringent safety regulations and better risk management, the report says the potential for more expensive liability losses around the world is increasing, particularly in relation to global product recalls, corporate liability, cyber and environmental incidents.
Additionally, new corporate liability exposures will arise from disruptive technologies and the more complex business models of the growing ‘sharing economy.’
Top 10 causes of liability loss by total value of claims
“Liability losses are ubiquitous and can range from minor incidents to major disasters, always causing third party damage or injury,” says Alexander Mack, 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 analyzes over 100,000 corporate liability insurance claims from more than 100 countries, with a total value of 8.85 billion euros ($9.3 billion), paid by AGCS, and other insurers, between 2011 and 2016. Over 80 percent of losses arise from ten causes.
Top causes of loss and claims trends
Impact of a defective product or work is the largest cause of loss, accounting for almost a quarter of the value of all claims (23 percent). The average loss costs businesses in excess of 260,000 euros 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,” says Larry Crotser, Head of AGCS Chief Claims Office, North America.
Significant improvements in automotive and aviation safety may have reduced the number of collisions and crashes in recent years but these are still a major driver of liability losses, accounting for over a fifth of the value of all claims (22 percent), as well as generating the most claims.
Human error (19 percent) is the third top cause of loss, driven by incidents which result in major losses, such as aviation and shipping events or employee injury.
Top causes of liability loss according to number of claims received
Larger losses more commonplace
According to the report losses in excess of $1 billion are becoming more commonplace and are no longer confined to the United States, and Europe, as regulators become tougher, supply chains more complex and US-style litigation and compensation awareness spread around the globe.
The United States 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. “However, we do see a trend towards greater liability claims outside the US with rising awareness of consumer rights and compensation in Asia and Europe,” says Peter Oenning, Global Head of Liability Claims, AGCS. 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 United States.
Insurers are also seeing a significant increase in large environmental liability loss activity, in the mining and construction sectors, and in Latin America and Asia. Analysis shows the average environmental damage incident costs businesses in excess of 2.3 million euros, although costs will be significantly multiplied in major disasters.
Technology to drive big shift in liability losses
In future, 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 will also bring new liability threats such as increasing cyber, product liability and recall risk. Automation is likely to lead to increased product liability risk for machinery and component manufacturers and software providers, for example. 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.
China growth in cyber and environmental liability claims
China growth in cyber and environmental liability claims
The growing “sharing economy” also raises new questions.
“Just imagine, a road traffic accident featuring an autonomous car share vehicle could involve the vehicle manufacturer, software provider and the fleet operator, as well as third parties involved in the accident. This would make liability harder to apportion and claims more complex to settle,” explains Oenning. Such a future car accident scenario will require claims handlers to understand sensors and algorithms to determine the cause of an accident. With the handling of liability claims becoming more complex and technical, investing in claims expertise and knowledge is increasingly important.
Autonomous driving: implications for insurance
And finally… unusual liability claims
Liability losses also incorporate more unusual events. Almost 2 percent of claims analzysed involve animals. Deer are the most dangerous due to being involved in collisions with vehicles in the United States in particular. Bedbugs are an increasing bugbear for insurers, with the number of claims resulting from infestations and bites in hotels having increased over the past five years.
Unusual liability losses: When animals (and insects) attack
About Allianz Global Corporate & Specialty
Allianz Global Corporate & Specialty (AGCS) is the Allianz Group’s dedicated carrier for corporate and specialty insurance business. AGCS provides insurance and risk consultancy across the whole spectrum of specialty, alternative risk transfer and corporate business: Marine, Aviation (incl. Space), Energy, Engineering, Entertainment, Financial Lines (incl. D&O), Liability, Mid-Corporate and Property insurance (incl. International Insurance Programs). Worldwide, AGCS operates in 30 countries with own units and in over 210 countries and territories through the Allianz Group network and partners. In 2016, it employed around 5,000 people and provided insurance solutions to more than three quarters of the Fortune Global 500 companies, writing a total of 7.6 billion euros gross premium worldwide annually.
AGCS SE is rated AA by Standard & Poor’s and A+ by A.M. Best.
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Source: Allianz Global Corporate & Specialty (AGCS)