There is increasing potential for “larger liability claims to become more expensive, complex and international, demonstrating the pervasive and long-term nature of liability losses,” suggests a new global claims review released Thursday by Allianz Global Corporate & Specialty (AGCS).
Industrial, environmental, product liability and financial lines claims in excess of US$1 billion – based on a 2015 Aon study that identified 86 corporate liability losses of that amount – “are more commonplace and are no longer confined to just the U.S. and Europe,” notes Global Claims Review: Liability in Focus – Loss trends and emerging risks for businesses.
The Aon report notes some 57 of the 86 losses were in excess of US$2 billion and 13 were more than $10 billion, “mostly from pollution incidents and regulatory actions,” the review states.
“While we have not necessarily seen an increase in the frequency of large liability claims, those that are filed are typically now more complex and with a higher spend than in the past,” Larry Crotser, head of AGCS chief claims office, North America, points out in the report.
“This can be seen in the cost of product liability claims, which have been rising, while we now also see a far bigger impact from environmental liability claims,” Crotser notes.
“The emissions testing issues in the automotive industry are an example of just how complex liability losses can become, giving rise to multi-jurisdictional regulatory investigations and litigation,” the review suggests.
It notes that last October, Volkswagen agreed to a US$15 billion settlement with a group of U.S. federal and state regulators covering some 475,000 vehicle owners in the U.S. And this past December, the company “agreed to a further US$1 billion settlement to fix or buy back another 80,000 diesel vehicles sold in the U.S.,” the report adds.
“While very large liability losses can impact individual companies, they also can trigger systemic risks that can affect many companies within a given sector,” the review cautions, adding that large environmental liability claims, such as pollution, are increasing, particularly from the mining and construction sectors.
“Such claims can be complex, costly and take a long time to settle. They can be particularly challenging in emerging markets, given cultural differences, language and legal systems that may be different to U.S. and European courts,” the report explains.
Add to that that global class actions by consumers and investors are expected to become more significant, moving from a primarily U.S. affair to more international.
“The Americas region, driven by the U.S., continues to be the largest liability market in terms of number of claims generated, accounting for over half of all claims analyzed,” the report states.
The liability claims analyzed in the review have an approximate value in excess of 8.85 billion euros or US$9.3 billion, the report notes.
While claims payments can vary widely in scale – reflecting the widespread nature of the risk landscape – major liability losses (amounting to greater than 1 million euros), such as aviation, shipping or terrorism incidents, account for fewer than 1% of claims by number. That said, these claims represent 74% of the total value of claims analyzed.
“Collectively, the top three causes of loss account for over 60% of the value of all liability losses analyzed, while the top 10 causes of loss for global businesses account for over 80% of all liability losses,” AGCS reports.
The move toward becoming more complex, expensive and international demonstrates a real shift.
Although the Top 10 causes of liability loss by value from 2011 to 2016 are well-established, the frequency of some claims is declining. The list below is based on analysis of more than 100,000 claims from 100-plus countries over five years.
Consider that the impact of collision/crash and slips/falls/falling objects are the most frequent liability claims for insurers, accounting for 48% of all claims by number.
“However, the frequency of these claims has been declining in many major casualty markets, a reflection of improvements in risk management and better safety regulation, as well as a shift away from heavy industry,” the report explains.
That said, there are some common losses that perhaps show signs of extending their reach in future. Human error, for example, ranks as the third top cause of liability loss (19%), but accounts for just 1% of all claims received by insurers.
“While this loss category focuses on the impact of everyday employee errors in the workplace, it also includes the effect of much larger events where human error has been a factor, such as in aviation or shipping accidents,” the report explains.
Then there is the potential impact of future influencers like new technology in the form of autonomous driving, 3D printing and the sharing economy.
“Broadly speaking, the frequency of claims is expected to decline, although this will be accompanied by new threats, such as increasing cyber and product liabilities and recall risks,” the report points out.
“Business models in the digital economy are more complex and without borders, making liability harder to apportion and claims more complex to settle. Automation is likely to lead to increased product liability for machinery and component manufacturers and software providers in particular,” it states.
Related: Driverless cars to “revolutionize” motor insurance as liability shifts towards manufacturers: Fitch
With regard to new manufacturing techniques like 3D printing, this “could play a positive role in addressing rising business interruption exposures, but could also make it harder to trace products through the supply chain,” the report notes.
The new environment will require appropriate expertise, AGCS expects.
“With liability claims becoming more complex and technical, investing in claims expertise and knowledge is just as important for liability lines as it is for property and specialty lines,” the report advises.
“As businesses grow ever more sophisticated and connected, insurers need to ensure that their claims handling processes stay up-to-date,” it emphasizes.
Source: https://reactionsnet.com, April 17, 2017
Environmental liability claims above $1bn are becoming more commonplace but coverage for the peril is still lagging.
According to Allianz Global Corporate & Specialty (AGCS), environmental damage can now cost insurers an average of €2.3m per claim.
According to Matt O’Malley, president of North America environmental at XL Catlin, the insurance penetration rate for environmental cover in the US, which is the largest environmental insurance market, is roughly 10%.
“Penetration for middle markets is much lower compared to Fortune 1000 companies, so there is definitely a growth opportunity for insurers there,” he said.
The shift in environmental claims was recently highlighted by a wide-reaching scandal in Europe and beyond, in which nearly every diesel-powered vehicle on the continent emitted more pollutants in real world driving scenarios than had been indicated during testing.
Whether through emission cheating devices or the creative interpretation of data results, such a scandal highlights how complex liability losses can become. Volkswagen’s involvement in the scandal ended up bringing numerous other automakers into the fold, including General Motors, Fiat Chrysler, Renault and Mitsubishi.
Losses to Volkswagen alone have been estimated at $21bn, according to Reuters.
In the US, electric company Duke Energy recently sued 30 of its former insurance companies including Allianz, Allstate, and Berkshire Hathaway for roughly $1bn in clean-up fees after it was discovered that coal ash which the company had disposed of over a period of decades was seeping into nearby groundwater.
According to O’Malley, mould has become increasingly problematic – particularly so in the hospitality sector – and led to some unexpected claims as high as seven figures.
Mid-stream energy, or the transportation of oil and other energy sources to their destination, has also become an issue on the US, as any pipe breach could cost thousands in a matter of minutes due to the sheer volume of oil or gas being pumped through an ageing system.
While O’Malley has not seen a rise in the total number of claims or claims inflation in the US as of yet, the individual limits being purchased by client are increasing.
“One broker has managed to get a tower between $350m and $400m together,” he said, a sizeable increase on the standard limits sought of circa $200m.
Environmental claims in Asia are expected to increase as the coverage becomes more widely purchased, AGCS has predicted.
Chinese authorities granted non-governmental organizations the ability to launch public interest litigation over violations of environmental law for the first time in 2014.
In Africa, mining operations have led to considerable issues with contamination, as governments step up efforts to combat pollution from ongoing operations.
One case currently ongoing in South Africa could set a legal precedent for all mining companies in the country after a trio of mining directors were arrested for leaving a polluted site in their wake.
They could face possible fines of more than $7m.
As governments gradually take steps to hold firms who pollute accountable, and the general public becomes increasingly concerned about environmental issues, insurers could have a potential business opportunity in a broader range of regions.
According to AGCS, environmental damage had the second highest average liability losses from 2011 to 2016, behind only to vandalism and terrorism, excluding financial lines.
Still, environmental damage only accounted for 10% of the value of all claims in the Americas, while not accounting for much in any other region, highlighting the relative novelty of the risk in emerging and established markets alike.
As far as individual lines of business, most industries carry some contamination risk.
Cargo trains can cause substantial damage if they derail, but if they do so while carrying hazardous materials near waterways, then the contamination risk is immense.
Such cargo trains routinely travel alongside the Hudson River in New York, where a single accident could lead to a large-scale environmental disaster.
In that space, rail insurers are usually not even insured enough for the immediate aftermath of a large-scale disaster, much less the clean-up costs, and are not required by law to carry insurance at all, although most do.
The amount of oil shipped by rail has also increased more than 40 times, according to the Insurance Information Institute, as the amount of oil from shale deposits has overwhelmed the pipeline delivery system.
Likewise, power plants, cargo ships, car manufacturers, and even retailers all have some form of contamination exposure.