Big increase in transactional risk claims notifications in 2022

There has been a substantial 25% increase in global claim notifications on transactional risk policies in 2022 but the expected surge in claim notifications in correlation with policy inceptions has not yet materialised, according to Marsh.

However, in its Global Transactional Risk Insurance Claims Report 2023, Marsh said that the additional insurance capacity that has entered the market has led many insurers to offer expanded coverage and reduce retentions, both of which will likely increase future claims volume and claims payments.

Although the number of claim notifications on representations and warranties (R&W) policies, also known as warranty and indemnity (W&I) policies, in 2022 was 25% higher than in 2021, this was still below the number of claims reported in 2020, the report notes.

The percentage of insured deals that received a claim varies regionally, with North American deals receiving claims at more than twice the rate of deals in Europe, the Middle East, and Africa (EMEA). “But globally, we have historically seen approximately 14% of insured deals receive a claim. If this trend persists, we anticipate claim notifications continuing to increase in line with the higher number of insured deals that closed in recent years,” says the report.

Tax, compliance and financial statements breaches have remained the top three types of breaches since 2019. The report shows that tax breaches were the most common in the period between 2019 and 2021, making up 21% of all breaches, and the percentage of claims asserting tax breaches increased to 25% in 2022, which reflects a significant increase in tax claims in the EMEA region.

According to Marsh, last year saw a significant increase in claims asserting compliance with laws breaches, largely coming from North America, comprising 17% of all claims. Financial statements breaches continue to be common, though they represented only 13% of claims in 2022, a significant decline from prior years, with a decrease registered in all regions.

The aggregate loss amounts claimed in notifications made in 2022 totalled nearly $500m. Most claimed losses were less than $1m, with 7% exceeding $10m. While the average loss amount was $3.3m, loss amounts varied significantly based on breach type and deal size. Nearly 50% of the total claimed loss amounts came from financial statements breaches, despite representing only 13% of the total claims, the report states. Marsh said its clients received over $232m in payments in 2022, a significant rise over prior years.

The report shows that financial statements, contracts, and compliance with laws breaches produced over 82% of all claim payments in 2022, with payments for financial statements breaches comprising nearly half of the total.

According to Marsh, in 2022, the time from policy inception to claim notification was longer than in prior years. In contrast to the period between 2019 and 2021, when insureds reported 49% of claims within one year after policy inception, in 2022 the percentage dropped to 40%, with all regions showing reductions in claims notified within six months.