Don’t be fooled by all the chatter about cyber and natural catastrophe losses – the top causes of loss ranked by total value of claims between 2013 and 2018 were fire and explosion, according to Allianz Global Corporate & Specialty’s (AGCS) Global Claims Review.
The report zeroed in on global developments in corporate insurance claims, and based its findings on the analysis of over 470,000 corporate insurance claims with a total value of US$66.5 billion from 206 countries and territories. Not only did fire and explosion come out on top, but these risks also led by a significant margin, accounting for 24% of the value of all claims.
“It’s mainly [because of] two factors – one is the high concentration of value,” said Philipp Cremer, Allianz’s global head of claims, “and also the ever-increasing business interruption element of the claim. With the way production companies organize themselves, there is an increasing level of dependency in the production chain, and so business interruption claims do increase very significantly.”
Fire and explosion include events like building or factory fires, electrical fires, gas explosions, and vehicles fires, along with turbine explosions and vineyard fires. The costs associated with the impact of business interruption after one of these fires burns out are high, with the events resulting in more than US$16 billion worth of claims over the five-year period, according to the report.
In second place, making up 14% of the value of claims analyzed were aviation collisions and crashes.
“For aviation, the picture is two-fold. First, flying has become much safer for all of us, so there are much less air crashes with fatalities,” explained Cremer. “On the other hand, any losses have become more expensive – air traffic has increased steadily, airports have become very busy,” and the new generation of aircrafts are much costlier to repair because of the materials used to construct airplanes. In turn, average costs of repair are rising and that’s been a major driver for the severity of average losses in AGCS’s aviation portfolio. However, Cremer added that the company is the lead aviation insurer globally, which means the figures don’t necessarily represent the overall insurance market.
Specific industries are especially noteworthy for the size of losses they’ve experienced, such as in the energy sector.
“The energy industry has seen quite significant losses, and there again, it’s a high concentration of values and the volume of the business interruption, which drives the losses,” said Cremer. “The pharmaceutical sector is another one where liability claims can be very significant, so it’s very different scenarios for different sectors.”
While not at the top of the list, weather-related events were responsible for one notable cause of losses, which were storms that accounted for 7% of the value of claims. While the trifecta of hurricanes in 2017 was intense, the four previous years had been quieter on the disaster front, though Cremer told Insurance Business that there’s no doubt worldwide exposures to natural catastrophes are on the rise.
“We have more and more concentration of values in coastal areas, and the interdependency of production chains in the globalized economy show that as a business, you don’t have to actually be in the disaster zones in order to have a loss,” he said. “It’s sufficient to have one of the key suppliers located in the flood or storm area, and then you suffer a contingent business interruption loss. Therefore, natural catastrophes as an exposure are certainly more important for the overall economy.”
As for cyber, the Allianz leader believes that losses stemming from this risk will eventually become a top cause of losses – the only question is when. While the big cyber events that make headlines often detail how much consumer data was exposed to hackers, internal software failure is also sometimes to blame for an airline’s booking system not working, for example, or a computer network controlling machinery on an assembly line malfunctioning, which then likewise results in business interruption losses.
In the meantime, as risks accumulate and companies have to be aware of traditional perils as well as emerging ones, Cremer says that Allianz insureds are continuously improving their risk management strategies.
“There’s no shortage of attention there. What I think is still an area where businesses can further analyze and take precautions is in their supply chains [and] contingent business interruption claims,” he said. “Understanding the supply chain and finding ways of making it more resilient I think is for both our insureds and also for us, something that is still an area to work on. Large corporates have thousands, and sometimes tens of thousands, of suppliers, so it is a very complex task.”
The claims figures quoted in the Global Claims Review are 100% of the total loss, and the data set did not only include the AGCS share, but also the share of other insurance companies involved on the particular risk.