Global businesses face an increasingly complex risk landscape. As well as having to combat the threat posed by a host of natural and man-made hazards, companies also have to deal with the demands of a less forgiving regulatory and legal environment. All of these factors can combine to impair successful running of operations. Insurers have a vital role to play in ensuring any disruption following a loss event is minimized.
This report examines global developments in insurance claims, highlighting the top causes of loss, and other trends for businesses. It also examines a number of emerging risks that will impact the claims landscape in future.
> Download the Full Report
> Download the Executive Summary as a PDF in:
Top 10 losses analysis
Ship groundings – reflecting the high values of modern maritime risks – fires and plane crashes are the top causes of business losses by total value, based on analysis of over 11,000 major business claims from 148 countries over a five-year period, across six sectors – Aviation; Energy; Financial Lines; Liability; Marine; and Property and Engineering.
Top causes of loss by total value (2009-2013)
3 Aviation crash
6 Bodily injury (including fatalities)
8 Professional indemnity
9 Product defects
10 Machinery breakdown
Based on insured losses over €100,000
The top 10 losses account for almost 70% of financial losses, with the list dominated by non-natural catastrophe causes (7).
Recent loss activity/trends
To date in 2014, 80% of the 10 major reported losses, (see Global Loss Atlas: 10 Major Non-Nat Cat Losses 2014) have come from aviation incidents or fire, particularly in the oil and gas (energy) sector with the largest loss – a fire at a Siberian refinery complex in June – reported to be around $800m (€586m).
In 2013, the 20 largest losses reported across the insurance industry totaled around $8.1bn (€5.94bn), excluding those caused by natural catastrophes. Incidents from the oil and gas sector dominate this total, accounting for 40% ($3.2bn/€2.34bn). Fire and/or explosion caused eight of the top 20 losses, the costs of which totaled almost half of the total loss bill ($4bn). North America was the location of seven of the top 20 losses.
The highest losses are seen in the oil and gas (energy) sector, which is responsible for the largest insured losses on average €20.8m ($28.4m) - over 10 times the average loss amount across all lines of business analyzed (€1.9m/$2.59m).
The growing relevance of business interruption (BI) as a consequence of losses in property insurance, heightened by lean supply chains and globalized manufacturing, is shown with average losses from BI at €997,602 ($1.36m), 32% higher than those from direct property damage (€755,198/$1.03m).
Losses by business sector
Improvements in airline safety are leading to fewer catastrophic losses overall, despite 2014’s extraordinary loss activity. However, the cost of aviation claims is rising, driven by the widespread use of new materials, ever more-demanding regulation and liability-based litigation.
While plane crashes are the top causes of loss in terms of number of claims generated (23%) and value (37%), on-the-ground incidents also account for a significant portion of claims in number and value (18%/15%).
Bird strikes are a notable cause of loss in the analyzed claims averaging €16.7m ($22.8m) every year – with a total of 34 incidents (27 to airlines). Annual damages
have been estimated at $400m (€293m) in the US. Birds are not the only animals that can cause aviation losses, with claims arising from zebras in Africa and cows in Asia and Latin America.
Higher asset values combined with increasingly complex and interrelated risks means that the cost of energy claims is increasing, particularly from large installations. The rising cost of BI and emerging risks from new technologies will also make for a more challenging future environment.
Fire is the number one cause of energy losses – both by number and value (45%/65%) – followed by blow-out (18%/19%). Machinery breakdown, explosion, natural hazards (storm) and contingent business interruption (CBI) are the other main causes of loss.
The energy industry’s increasing reliance on technology also presents risks. Rigs, floating production, storage and offloading units (FPSOs), onshore refineries and pipelines all rely on information systems and networks, which create cyber exposures. These facilities are increasingly exposed to property damage and BI from malicious cyber attacks, operator error or data corruption.
> Energy Claims Trends
Financial institutions and directors’ and officers’ claims face two major challenges, a far less forgiving regulatory environment and the spread of collective actions, driven by a growing claims culture and increasingly savvy litigators and litigation funders.
In many countries around the world AGCS is seeing an increase in professional indemnity claims, which are the top cause of loss in the sector (74% by number/72% by value). Germany is an exception, with the loss landscape currently being driven by D&O activity.
There is also a notable trend towards class or collective actions in new areas, with new legal landscapes emerging outside of the US. Collective remedies were
once unheard of in many markets but AGCS sees more countries adopting them.
Emerging markets in Asia and Latin America are still relatively benign in terms of claims trends, but this will change as they develop. Insured vs insured actions are
likely to become more of an issue in Brazil, as they have in Germany.
> Financial Lines Claims Trends
Liability claims are becoming more international, complex and costly as awareness of compensation and US-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. Claims from product defects are high in volume. Automotive recall cases are becoming more frequent and more expensive.
Although the largest liability claims still emanate from the US, there is a gradual trend towards more significant claims from other countries, including those in Asia.
Globalization and consolidation of industries means that claims, in general, are getting bigger, spanning different lawyers, jurisdictions and legal systems.
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
Crew negligence is often a main driver behind three of the top five causes of loss (grounding; hull damage; and collision), with it being a potential contributing factor in over 60% of claims over €1m ($1.36m). In the UK alone it is estimated that 60% of all hull and machinery claims are for machinery damage and the vast majority of these are due to crew negligence.
The Costa Concordia loss in 2012 drives grounding to the top of the top causes of loss list by value. However, this cause of loss is relatively infrequent (8%). Wreck
removal is becoming more complex and expensive as environmental concerns and improved salvage technology place greater demands on ship operators and their insurers. As Costa Concordia demonstrated, wreck removal costs can easily be a multiple of the hull value.
A shift in piracy trends from hijack off Somalia to thefts off West Africa has resulted in a drop in the value of claims. Costs to release vessel and cargo are significantly higher than the thefts of oil. Often the West Africa thefts are to fulfil an order, so it is not unusual for only part of a cargo of oil to be stolen.
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. The cost of natural catastrophe claims is likely to rise as economic activity and the value of assets in hazard zones increases.
Property and engineering claims are following the trend set in the oil and gas sector, where major BI claims and high values have been a significant feature for some time. There is now increasing potential for similar size claims in certain manufacturing industries, such as the semiconductor and automotive industries.
Fire is the major cause of property losses both by number and value (26%/28%), with machinery breakdown a large driver of claims in terms of the number generated. Earthquake and human/operating error are the top causes of engineering losses by value (65%) and number of claims generated (30%) respectively.
Non-damage BI will become a much bigger issue in the future, with businesses looking to mitigate against a range of exposures, such as the financial impact of
events like a government authority closing down an area linked to an outbreak of communicable disease, or from political risks like civil commotion and riots.
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, particularly with the increasing number of intangible risks such as loss to reputation and supply chain damage.
For property casualty insurance and claims, rising natural catastrophe exposures and climate change, the increasing complexity and interconnectivity of risks, especially for BI, and the growing importance of cyber threats will be among the most relevant emerging risk trends to watch.
Aggregation of risk is a major issue for cyber risks and one of the big challenges for the insurance industry. A single virus or network infrastructure blackout could potentially affect whole sectors or many companies across sectors.