Not only are liability losses increasing but they are getting more expensive, particularly in relation to global product recalls, corporate liability, cyber and environmental incidents, according to a new report by Allianz Global Corporate & Specialty (AGCS). Global Claims Review: Liability in Focus identifies defective product or work, crash and human error incidents as the largest causes of liability loss for businesses, based on analysis of insurance claims.
“Liability losses are ubiquitous and can range from minor incidents to major disasters, always causing third party damage or injury,” says Alexander Mack, AGCS Board Member and Chief Claims Officer. “The risk landscape for companies is constantly shifting with liability risks on the rise globally. New technologies such as the Internet of Things, autonomous mobility or 3D printing will create fundamentally new liability scenarios for companies in almost every sector.”
The AGCS Global Claims Review analyzes over 100,000 corporate liability insurance claims from more than 100 countries, with a total value of $9.3 billion, paid by AGCS and other insurers, between 2011 and 2016. Over 80 percent of losses arise from ten causes.
|Top 10 global causes of liability loss by total value of claims|
The impact of a defective product or work is the largest cause of loss, accounting for almost a quarter of the value of all claims (23%). The average loss costs businesses in excess of $280,000 with the cost of product recalls being a major driver.
“The number of recalls has been steadily rising with increased focus on product and workplace safety, as well as more proactive regulation,” says Larry Crotser, Head of AGCS Chief Claims Office, North America.
Significant improvements in automotive and aviation safety may have reduced the number of collisions and crashes in recent years but these are still a major driver of liability losses, accounting for more than a fifth of the value of all claims (22%), as well as generating the most claims. Human error (19%) is the third top cause of loss, driven by incidents which result in major losses, such as aviation and shipping events or employee injury.
Larger losses more commonplace
Losses in excess of $1 billion are becoming more commonplace and are no longer confined to the U.S., and Europe, as regulators become tougher, supply chains more complex and U.S.-style litigation and compensation awareness spread around the globe.
The U.S. continues to be the world’s largest liability market generating both the highest number of claims, and many of the largest claims according to value. While class actions by consumers and investors remain largely a U.S. affair, a growing number of countries now also allow for collective actions. Conversely, foreign companies are increasingly being sued in the U.S.
Technology to drive big shift in liability losses
Digitalization and growing use of new technologies are likely to lead to a further shift in the liability risk landscape. Overall, the frequency of claims is expected to decline as trends such as autonomous driving improve road safety. However, technology will also bring new liability threats such as increasing cyber, product liability and recall risk.
Automation is likely to lead to increased product liability risk for machinery and component manufacturers and software providers. New data protection laws around misuse or breaches of data will increase cyber liability for companies, potentially resulting in heavy fines and penalties, particularly in Europe from 2018, but also elsewhere.
Nearly two percent of claims analyzed involve animals. Deer incidents, particularly involving collisions with cars, account for 58 percent of animal-related liability claims and cost in excess of $4,225 per incident.
Bedbug/insect incidents account for almost 30 percent of animal-related liability claims received by insurers, with the number of bedbug incidents on the rise in the U.S. While bed bugs are found year-round, infestations and incidents peak during warmer months (April to August).
Source: Allianz Global Corporate & Specialty