September 10, 2014 by Canadian Underwriter
Almost 70% of financial losses between 2009 and 2013 arose from 10 causes of loss, with ship groundings topping the list, concludes an analysis released Wednesday by Allianz Global Corporate & Specialty (AGCS).
The largest single identified cause of loss by total value was ship groundings, reflecting the high values of modern shipping risks, notes a release from AGCS, Allianz Group’s dedicated carrier for corporate and specialty insurance business. This was followed by fire, aviation crash, earthquake, storm, bodily injury (including fatalities), flood, professional indemnity, product defects and machinery breakdown, AGCS adds.
The Global Claims Review 2014 – which highlights the increasingly high values at risk in industrial insurance claims – details AGCS’s analysis of 11,427 claims from 148 countries with a total value of more than 21.5 billion euros (US$29.3 billion), recorded for the accident years 2009 to 2013, each with a total value after deductible of 100,000 euros (US$136,455) or more, including all its traditional lines of business (excluding Allianz Risk Transfer).
Using industry-wide data, the 20 largest losses reported across the insurance industry in 2013 totalled approximately 5.9 billion euros (US$8.1 billion), excluding those caused by natural catastrophes.
“Incidents from the oil and gas industry dominate these 2013 major losses, at 40% of the total, while fire and/or explosion was responsible for eight of the top 20 losses or, at approximately 2.9 billion euros (US$4 billion), nearly half of the total loss bill,” AGCS reports. The 2009-2013 analysis confirms the high losses seen in the oil and gas sector, which is responsible for the largest insured losses on average at 20.8 million euros (US$28.4 million).
To date in 2014, 80% of the major reported losses come from aviation incidents or from fires, particularly in the energy sector with the largest loss (a fire at a Siberian refinery complex in June) reported to be around 586 million euros (US$800 million), the statement adds.
The report notes losses by business sector include the following:
• Aviation – Despite 2014’s extraordinary loss activity, improvements in airline safety are leading to far fewer catastrophic losses overall, although the cost of aviation claims is rising. While aviation crashes are the top causes of loss in the analyzed data in terms of number of claims and value (23% and 37%, respectively), on-the-ground incidents also account for a significant portion of claims in number and value (18% and 15%, respectively).
• Energy (oil & gas) – Higher asset values combined with increasingly complex and interrelated risks mean the cost of energy claims is increasing. Fire is the number one cause of energy losses in the surveyed claims, both by number and value (45% and 65%, respectively) followed by blow-out (18% and 19%, respectively). Machinery breakdown, explosion, natural hazards (storm) and contingent business interruption (CBI) are the other main causes of loss identified in the AGCS data.
• Liability – Liability claims are becoming more international, complex and costly as awareness of compensation and U.S.-style litigation continues to spread. Although not large in number, personal injury and wrongful death claims resulted in more than 40% of the claims costs analyzed. Claims from product defects are already high in volume, while automotive recall cases are also becoming more frequent.
• Marine – Rising claims inflation, the growing problem of crew negligence and the high cost of wreck removal have all been contributing to a worrying rise in the cost of marine claims, although frequency of claims (especially from cargo losses) appears to be declining. Crew negligence is often a main driver behind many of the top causes of loss, with it being a potential contributing factor in more than 60% of claims of more than 1 million euros (US$1.4 million).
• Property and Engineering – The cost of large commercial property and engineering claims is rising, with the trend towards ever-higher values and risks that are increasingly interconnected and concentrated on areas with exposure to natural hazards. While the cost of natural catastrophe claims is likely to rise, fire is the major cause of property losses in the AGCS data, both by number and value (26% and 28%, respectively). Earthquake is the top cause of engineering losses by value (65%) while human/operating error number is the most common, generating 30% of losses by number.
With regard to emerging risks, AGCS reports that “technology, economic growth, climate change, societal change and the fast-developing legal and regulatory framework are all affecting risk and making insurance claims more challenging, not least with a shift away from tangible risks like fire damage towards intangible risks like reputational risk and supply chain interruption.”
For property and casualty insurance and claims, “rising natural catastrophe exposures and climate change, the increasing complexity and interconnectivity of risks, especially for business interruption (BI), and the growing importance of cyber threats will be among the most relevant emerging risk trends to watch,” the statement adds.
Citing the growing relevance of BI as a consequence of losses in property insurance, heightened by lean supply chains and globalized manufacturing, AGCS reports average losses from BI at 997,602 euros (US$1.36 million), 32% higher than those from direct property damage (755,198 euros, or US$1,030,505).
“By sharing this analysis, we hope to demonstrate the key role that effective claims service plays in getting businesses back on track when disaster strikes,” Alexander Mack, chief claims officer for AGCS, says in the statement.
(click to enlarge images below – source: Allianz Global Corporate & Specialty (AGCS) Global Claims Review 2014)