Liability exposures for companies around the world are increasing, according to a new report from Allianz Global Corporate & Specialty (AGCS). Rising litigation, collective redress and large court verdicts, frequent recalls in the automotive and food sectors, civil unrest, environmental concerns and other factors will likely impact businesses and insurers, according to the report, which highlighted five trends for the sector.
“Pricing in the liability insurance market may have turned in recent months. However, social inflation trends and large court verdicts continue in the United States,” said Ciara Brady, global head of liability at AGCS. “This, combined with expanded exposures for non-US companies doing business in the US and an increase in automotive part recalls, is putting pressure on liability insurers. Overlay this with the uncertain economic outlook, political instability and unknown impacts from coronavirus, and this is creating a challenging market for clients, brokers and insurers alike.”
Trend 1: Social inflation in the US and the rise of collective redress globally
Social inflation is particularly prevalent in the US, driven by the emergence of litigation funders, higher jury awards, more liberal workers’ compensation claims and new tort and negligence concepts, AGCS said. The median settlement amount of the top 50 US verdicts from 2014 to 2018 nearly doubled, from US$28 million to US$54 million. Litigation funding is also on the rise in the UK, Europe and elsewhere, contributing to a growing trend of collective redress as benchmarks for consumers to file class actions are lowered.
While AGCS said it was too early to identify a definite trend, court closures due to COVID-19 may slow down social inflation as plaintiffs realise that it may be years before their case is tried and therefore may be willing to settle out of court.
Trend 2: Rising automotive repair and recall costs
Recent years have seen a growing number of recalls in the auto industry, both in the US and Europe. In the US, there were 966 safety recalls affecting more than 50 million vehicles in 2019. In Europe, 2019 saw 475 recalls – the highest single-year figure in the 2010s and an 11% year-over-year spike.
In many cases, auto components are produced by one of only a few suppliers that serve the entire industry, which can make it prone to accumulation risks. As a result, recalls have become larger and more expensive over time, AGCS said. Industry losses are also driven by the increasing complexity of technology, which can increase time and labour rates for repairs.
Trend 3: Food safety risks and recalls
Food recalls are increasing globally, driven by factors like global manufacturing, fewer suppliers in complex supply chains, enhanced regulatory scrutiny, and improved technology that allows better traceability and pathogen detection, AGCS said.
The COVID-19 pandemic could have a significant impact on food recalls in the future, AGCS said. While dramatically increased hygiene standards could reduce contamination risks, risk exposures could also rise due to temporarily closed and restarted factories, decreased regulatory visits and erratic supply chains.
Trend 4: Riots and civil unrest
Recent civil unrest in the US, Chile, Hong Kong and elsewhere are high-profile examples of the rise of civil unrest globally, AGCS said.
“Political violence increasingly causes property damage, disruption and loss of attraction and revenues to many businesses,” AGCS said. “For example, civil disorder in the wake of the death of George Floyd in many US cities is expected to have caused losses of more than US$1 billion.”
While the COVID-19 outbreak may have temporarily suppressed civil unrest in some countries, AGCS warned that the underlying social issues remain – making it likely that further protests will occur in the near future.
Trend 5: Indoor air quality after COVID-19
Two environmental risks are particularly paramount for businesses right now: indoor air quality concerns with legionella and mould growth, and the increasing risk of environmentally driven prosecutions, fines and remedial actions as public awareness of pollution and natural capital depletion grows, AGCS said.
Mould and legionella risks have been exacerbated by the pandemic-related shutdown of commercial buildings and hotels; when certain air quality or water installation systems are dormant for a time, they are more susceptible to bacterial contamination. Undetected mould growth can also result from real estate companies delaying planned maintenance or renovation activities, AGCS said.