Fires and explosions cause largest losses for business globally, Asia Pacific accounts for 17% (EUR10bn) of total value of claims worldwide: Allianz

December 12, 2018 - 05:10
Fires and explosions cause largest losses for business globally, Asia Pacific accounts for 17% (EUR10bn) of total value of claims worldwide: Allianz

  • Analysisof over 470,000 global insurance claims from 2013 to 2018. Largest financiallosses come from fires/explosions and aviation incidents
  • Majorityof corporate insurance claims originate from technical or human factors, accountingfor 87% of all claims by value
  • Propertyclaims are becoming more expensive, with a rising share of businessinterruption losses


SINGAPORE - Media OutReach - 13 December 2018 - Fire and explosion incidents causethe largest claims for insurers and the businesses they cover, according to newresearch from Allianz Global Corporate & Specialty (AGCS). The vast majorityof corporate insurance claims originate from technical or human factors despitenatural catastrophes such as hurricanes, having caused devastating losses overthe past two years.


In its latest GlobalClaims Review, AGCS reveals the top causes of claims in thecorporate insurance segment based on an analysis of 470,000 claims from over200 countries over the past five years (July 2013 to July 2018) with an approximatevalue of €58bn (US$66.5bn).


The largest financial losses come from fires/explosions,aviation incidents, faulty workmanship/maintenance incidents and storms, whichcollectively account for over 50% of all claims by total value. Over 75% offinancial losses globally arise from 10 major causes of loss.


"The report highlights the increasingly high values at riskfor businesses and their insurers alike," says Philipp Cremer, Global Head ofClaims, AGCS. "In today's interconnected and globalized business environment, financiallosses are increasing due to geographical concentration of values - often in risk-exposedareas - and from the knock-on effects of global supply chains and networks. Lookingto the future, newtechnologies bring business benefits but also risks and claims.However, they also provide an opportunity to prevent and mitigate losses andimprove the claims settlement process for our customers."


Exposures increasingin Asia Pacific


Asia Pacific accounts for 17% of total value of claimsglobally at almost €10billion, and 6% of total claims by number globally.


In particular, financial lines and liability claims in theregion are increasing in size and frequency as regulators step up theiractivities, introduce tougher environmental and consumer protection regulationand with growing public awareness of rights to compensation.


"For D&O and professional indemnity insurance across theregion, we see more intense regulatory enforcements in Asia markets that do notalways follow US or European understanding of law. Australia, in particular hasexperienced a sharp rise in D&O activity in recent years, caused by morelitigation. Class action lawsuits and more litigation funders have madeAustralia one of the most litigious countries outside the US," says StephanKammertoens, Financial Lines Claims Specialist at AGCS.


The frequency of liability claims in Asia has also beenincreasing in Asia. "During Q1 2017, AGCS had some 800 pending liability claimsin Asia, which has risen to 1,300 by Q2, 2018," says Peter Oenning, LiabilityClaims Specialist at AGCS. "We are also seeing much larger claims in Asia than previously.Once 9 out of 10 large claims globally AGCS would have seen would have comefrom the US. Now it's more like 7 in 10, reflecting greater activity in Asia.As companies have become more global and more Asian companies operate in theUS, the chances of being involved in litigation have increased."


More expensive firesand aviation repairs

Over the past five years fire and explosion incidents havecaused in excess of €14bn worth of losses and are responsible for more thanhalf (11) of the 20 largest non-natural catastrophe events analyzed. Theaverage claim is almost €1.5mn.


Fire is the topcause of loss in China, accounting for 65% of all claims in China by value, dueto large industrial blazes, such as the 2015 Tianjin explosions which severelydisrupted the port and container storage stations and impacted multiplebusinesses.


"In general, property insurance claims are higher withinflation and greater concentration in value as a result of globalization andmore integrated supply chains," explains Raymond Hogendoorn, Property andEngineering Claims Specialist at AGCS. "As manufacturers have become moreefficient, the values per square meter have risen exponentially. Fire and floodclaims are much more expensive per square meter than a decade ago."


Costs associated with the impact of business interruption (BI)can significantly add to the final loss total from fire and explosion incidents,as well as many of the other major causes of loss identified in the report. Almostall large property insurance claims now include a major BI element: The averageBI property insurance claim now totals €3.1mn,around 39% higher than thecorresponding average direct property loss (€2.2mn).


Despite recent record-breaking natural catastrophe lossactivity around the world, storm is the only natural catastrophe event toappear in the top 10 causes of loss. Analysis shows corporate insurance claimstypically originate from technical or human factors -- or non-naturalcatastrophe events -- accounting for 87% of all claims by value.


The global aviation industry recently experienced its safestyear ever but claims activity shows no sign of abating. Aviationcollision/crash incidents -- both ground and air -- are the second major cause oflosses globally and is the the top cause of loss in Australia accounting foralmost a third of value of claims. Increasing repair costs from compositematerials and more sophisticated higher value engines on aircrafts are also afactor.


Liability trends andInsurTech improvements

Defective products and faulty workmanship incidents, whichaccount for 14% of all claims by value, are the top cause of liability lossesfor businesses. In Singapore, faulty workmanship incidents are responsible foralmost 60% of the value of corporate insurance losses. Supply chains inindustries like automotive manufacturing are becoming more complex, leading tolarger product recalls and corresponding product liability claims. Measures bycompanies to restrict their number of worldwide suppliers further increasesexponentially product liability risks for these few suppliers.


It is estimated that around a third of large corporate liabilityclaims involve litigation with third parties, compared with property insurancewhere less than 1% of claims do on average.


Analysis also shows that insurers have paid on average €32mna day over the past five years to cover losses -- AGCS alone paid €4.8bn to itsinsureds in 2017. Insurers are increasingly adopting innovative technologies toimprove the claims handling process. Machine learning and robotics can speed upthe claims process for low-value, high-frequency claims. To quickly assess windor flood damage following natural catastrophes, AGCS utilizes satellite imageryand drones, providing faster loss estimates that enable better allocation ofresources and earlier claims payments.


The report provides loss break-down statistics for 13 countriesand analyzes claims patterns across various industries such as aviation,shippingand energyas well as insurance lines of businesses such as property,engineering,liabilityand financiallines.

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