Business continuity managers won't be shocked to see that over the past five years, fire and explosion and natural catastrophes have been the top two major causes of loss by value of insurance claims, but the third highest cause - faulty workmanship or maintenance - may be more of a surprise.
The above are according to the Global Claims Review 2022 from Allianz Global Corporate & Specialty (AGCS). In one of the industry’s most comprehensive analyses, AGCS has identified the top causes of loss for companies from more than 530,000 insurance claims in over 200 countries and territories that it has been involved with between 2017 and 2021 (typically a number of insurers provide coverage jointly considering the huge values at stake in the corporate sector). These claims have an approximate value of €88.7bn, which means that the insurance companies involved have paid out – on average – over €48mn every day for five years to cover losses.
The analysis shows that almost 75 percent of financial losses arise from the top 10 causes of loss, while the top three causes account for close to half (45 percent) of the value.
Despite improvements in risk management and fire prevention, fire/explosion (excluding wildfires) is the largest single identified cause of corporate insurance losses, accounting for 21 percent of the value of all claims. Fires have resulted in more than €18bn worth of insurance claims over five years, according to the analysis. Even the average claim totals around €1.5mn.
Natural catastrophes (15 percent) ranks as the second top cause of loss globally by value of claims. Collectively, the top five causes (based on more than 20,000 claims around the world) – hurricanes/tornados (29 percent); storm (19 percent); flood (14 percent); frost/ice/snow (9 percent) and earthquake/tsunami (6 percent) account for 77 percent of the value of all disaster claims. Hurricanes and tornados are the most expensive cause of loss, driven by the fact that two of the past five Atlantic hurricane seasons (2017 and 2021) now rank among the three most active and costliest on record, as well as recent record-breaking tornado activity. Insurers are also seeing new scenarios. During 2021, the ‘Texas Big Freeze’ in the US and flooding in Germany stood out as events that were both large but had unexpected claims. For example, the ‘Texas Big Freeze’ in February caused huge disruption to infrastructure and manufacturing, with many companies forced into shutdowns by widespread power outages, resulting in property damage and in some large contingent business interruption (CBI) losses. This event alone is estimated to have caused economic losses up to $150bn.
Faulty workmanship / maintenance incidents are the third top cause of loss overall (accounting for 9 percent by value) and are also the second most frequent driver of claims (accounting for 7 percent by number, ranking only behind damaged goods with 11 percent). Costly incidents can include collapse of building/structure/subsidence from faulty work, faulty manufacturing of products/components or incorrect design.
The remaining top 10 causes of loss are: aviation collision/crash (9 percent), machinery breakdown (5 percent), defective product (5 percent), shipping incidents 3 percent), damaged goods (3 percent), negligence/misadvice (2 percent) and water damage (2 percent).
While not appearing in the top 10 causes of loss, the number of cyber claims has significantly increased over the past few years, driven by the rise of threats such as ransomware attacks, but also reflecting the growth of cyber insurance. AGCS has been involved in more than 1,000 cyber claims in both 2020 and 2021, compared with fewer than 100 in 2016. Claims frequency has begun to stabilize however, albeit at elevated levels.
Insurance aspects of COVID-19 and the Ukraine crisis
The report also investigates the insurance impact of recent specific claims events such as the pandemic and the Ukraine crisis. 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 business interruption claims from companies affected by lockdowns. The pandemic has also had knock-on effects such as stressed supply chains, heightened inflation, and financial insolvencies.
Meanwhile, Russia’s invasion of Ukraine is likely to result in a significant, yet manageable, loss for the global insurance industry. Insurers exposure to the conflict are limited by war exclusions, which are standard in most property/casualty insurance contracts. Expected insured losses from the war in Ukraine are comparable with a mid-sized natural catastrophe, according to AGCS, but specialist markets like aviation insurance could yet suffer disproportionately.