Average large business interruption claim 36% more costly than average property damage claim: Allianz Global Corporate & Specialty

The average large business interruption (BI) property insurance claim is now in excess of US$2.4 million, 36% higher than the corresponding average property damage claim of just over US$1.7 million, according to a new report from Allianz Global Corporate & Specialty (AGCS), Allianz’s specialist insurer for business and industrial risks.

Released on Wednesday, the report, titled Global Claims Review 2015: Business Interruption In Focus, analyzed more than 1,800 large BI claims totaling over US$3.2 billion from 68 countries, including Canada, from 2010 to 2014. AGCS found that both the severity and frequency of BI claims is increasing, and that BI now typically accounts for a much higher proportion of the overall loss than was the case 10 years ago.

“This growth in BI claims is fuelled by increasing interdependencies between companies, the global supply chain and lean production processes,” explained Chris Fischer Hirs, CEO of AGCS, in a press release. “Whereas in the past a large fire or explosion may have only affected one or two companies, today losses increasingly impact a number of companies and can even threaten whole sectors globally.”

According to the AGCS analysis, the majority of BI claims originate from technical or human factors (88%) and not from natural catastrophes. The top ten causes of BI loss account for over 90% of such claims by value, with fire and explosion being the top cause, accounting for 59% of all BI claims globally.

In Canada, the top causes of BI loss are fire and explosion: 72% of claims valued more than 20,000 euros (approximately US$29,800). Collision follows at 6%, power interruption at 4% and other with 18%. The average BI claim is 787,937 euros (currently nearly $1.17 million in Canadian dollars). In North America, fire and explosion account for 52% of BI loss, followed by storm (14%), and cast loss in the entertainment sector (8%).

Globally, the top causes of BI loss by total value (2010-2014) for claims more than 20,000 euros are: fire and explosion (59%); storm (6%); machinery breakdown (5%); faulty design/material/manufacturing (5%); strike/riot/vandalism (4%); cast loss (entertainment) (3%); flood (3%); collapse (3%); human error/operating error (2%); and power interruption (2%).

Average BI losses are highest by value for claims originating from energy (US$4.3 million) and property (US$2.4 million) lines of insurance, followed by engineering (US$1 million) and entertainment (US$300,000). As well, the cost of large energy claims has been rising (see image below), with BI now accounting for a higher proportion of loss totals, as exposures have increased due to larger onshore energy facilities and growing interdependencies between companies resulting in regional contingent business interruption (CBI) claims if one plant is disrupted. [click image below to enlarge]

In the entertainment sector, illness or an accident of a cast member is the most prevalent cause of interruption, accounting for 60% of claims. Injury to a major star can delay the production, leading to multi-million dollar claims, the press release noted. Costly visual effects in film production, which often require contractual commitments with third party specialists, can cause more expensive claims through production delays, AGCS added.

“BI exposures are largest for sectors with high levels of interconnectivity and technological values as well as concentrations of risks in single locations such as automotive, semi-conductors and power and petrochemical plants,” said Alexander Mack, chief claims officer with AGCS, in the press release. “While modern supply chains may be flexible and cost-efficient, they are also more vulnerable to disruption. CBI coverage is increasingly being seen as an essential part of today’s insurance policy for many businesses.”