The confluence of challenges that business leaders are facing in today’s complex risk landscape is quite astonishing. From the COVID-19 pandemic to the war in Ukraine, record-breaking inflation, a supply chain crisis, geopolitical tension, labour shortages, and an uptick in severe weather events due to climate change – business leaders and their insurance partners have a lot to contend with.
This convergence of loss-driving factors has already had an impact on commercial insurance claims, according to the Global Claims Review 2022 from Allianz Global Corporate & Specialty (AGCS), especially when it comes to the cost and frequency of business interruption (BI) losses. For example, property and construction insurance claims are taking longer to resolve due to shortages in labour and materials, as well as longer delivery times in the strained supply chain, which has inflated the BI values. This can all be traced back to the COVID-19 pandemic and associated macro-economic pressures.
To complete the Global Claims Review 2022, AGCS analyzed more than 530,000 insurance claims in over 200 countries and territories that the insurer has been involved with between 2017 and 2021. The claims had an approximate total value of €88.7bn (CA$114.4bn), which means that the insurance companies involved have paid out – on average – over €48mn (CA$61.9mn) every day for five years to cover losses.
The total claims value of €88.7bn (CA$114.4bn) is a global number, but Frank Sapio, head of claims in North America for AGCS, said he’s seen a general increase in average claims costs in North America.
“I’ve never actually seen average costs go down in this business,” he commented. “There has always been a steady increase in claim values. Certain things will drive court settlements lower, but that doesn’t happen very often, and we’re really seeing the opposite of that right now. I think the trend, just like regular inflation and other macro-economic pressures in the world right now, is that everything costs more than it did three-years-ago.”
The AGCS claims analysis highlighted the growing relevance of BI as a consequence of losses in property insurance, and the fact that contingent business interruption (CBI) claims have reached a new high over the past year. Costs associated with the impact of BI following the aftermath of a loss can significantly add to the final bill from an incident.
“We’re certainly seeing CBI claims growing exponentially, and the cause of that is inflation in terms of labour shortages, supply chain interruption, and fuel costs going up,” Sapio told Insurance Business. “All of these things are driving up repair times, which means more BI and interruptions to other supply chains. It’s just amazing how interconnected we’ve become as a global economy.”
According to AGCS, the average BI property insurance claim now totals in excess of €3.8mn (CA$4.9mn) compared with €3.1mn (CA$3.99mn) five years ago. For large claims, which AGCS classes as anything over €5mn (CA$6.45), the average property insurance claim which includes a BI component was more than double that of the average property damage claim.
AGCS also found that the number of CBI claims has increased year-on-year over the past five years, which it attributes to the growing interdependence and complexity of corporate supply chains. This has been most obvious in the automotive industry, where a global shortage of semi-conductor chips over the last two years has resulted in a significant CBI loss.
Again, this all ties into some of the larger themes shaping the global risk landscape – primarily the COVID-19 pandemic. Insured losses from COVID-19 are in excess of US$40bn (CA$51.7bn) according to industry estimates, and the bulk of claims have come from BI claims from companies affected by lockdowns, as well as event cancellation insurance. Sapio noted the pandemic’s knock-on effects, such as stressed supply chains, heightened inflation, and financial insolvencies – all of which are still causing challenges in the BI and CBI arena today.
