Contingent BI losses up as claims severity increases over past five years: AGCS

Commercial insurance claims have increased in severity during the past five years, with contingent business interruption (CBI) losses reaching new heights as supply chains break down, says AGCS in a new report. The report also says that insured losses from the war in Ukraine will be manageable and similar to a midsized nat cat. AGCS’s Global Claims Review 2022 looks at more than 530,000 claims involving the insurer in more than 200 countries between 2017 and 2021. It reveals that total insured losses stood at €88.7bn. Almost 75% of financial losses arise from the top ten causes of loss. Fire and explosion, excluding wildfires, was the largest cause of corporate insurance loss, accounting for 21% of all claims. Fires have resulted in €18bn worth of claims during the last five years. Natural catastrophes are the second top cause of loss globally by claims value at 15%. The top five causes of nat cat claims were hurricanes/tornadoes (29%), storms (19%), flood (14%), frost/ice/snow (9%), and earthquake/tsunami (6%). Together, these perils accounted for 77% of insured nat cat losses. AGCS notes that two of the past five Atlantic hurricane seasons in 2017 and 2021 were among the top three costliest and active on record. It adds that corporates and their insurers are also facing rising nat cat losses from other perils. For example, the Texas ‘big freeze’ in the US, which caused economic losses of up to $150bn alone, and flooding in Germany last year, both saw “large” and “unexpected” claims, the insurer said. Faulty workmanship/maintenance incidents were the third top cause of claims, accounting for 9% of total value. The top three causes of loss make up close to half (45%) of the total claims value during the five-year period. In fourth place was aviation collision/crash (9%), followed by machinery breakdown (5%), defective product (5%), shipping incidents (3%), damaged goods (3%), negligence/misadvice (2%) and water damage (2%). The analysis shows that business interruption losses in property claims are rising, with CBI claims hitting a new high over the past year. The average BI property insurance claim now totals in excess of €3.8m, compared with €3.1m five years ago, according to the research. For large claims in excess of €5m, the BI component is more than double that average property damage claim, says AGCS. Its review notes that the number of CBI claims has increased in each of the past five years. AGCS says this highlights the “growing interdependence and complexity of corporate supply chains”. AGCS chief claims officer and board member Thomas Sepp said overall insurance claims have become more severe during the past five years, due to a number of factors. These include higher property and asset values, more complex supply chains and the growing concentration of exposures in one location, such as in natural catastrophe-prone areas, he added. And Sepp thinks this trend will continue. “The future does not look brighter anytime soon. Companies and their insurers have shown resilience to weather the loss impact of the pandemic, but the ongoing war in Ukraine, a spike in the cost and frequency of business interruption losses and the sustained elevated level of cyber claims are creating new challenges. At the same time, the top two causes of claims, fires and natural hazards, remain significant loss drivers for companies. Last but not least, the impact of soaring inflation around the world will bring further pressure on claims costs,” said Sepp. The report also investigates the insurance impact of recent specific claims events, such as the pandemic and the Ukraine crisis. AGCS says Russia’s invasion of Ukraine is likely to result in a “significant, yet manageable loss” for the global insurance industry, comparable to a midsized nat cat. It says insurers’ exposure is limited by war exclusions but added that specialist markets like aviation could suffer disproportionate losses. Insured losses from Covid-19 are in excess of $40bn according to industry estimates, with the bulk of claims coming from event cancellation insurance and BI claims from companies affected by lockdowns, says AGCS. The pandemic has also had knock-on effects such as stressed supply chains, heightened inflation and financial insolvencies, it adds.

Contingent BI losses up as claims severity increases over past five years: AGCS

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