3 April 2017 Insurance

Losses in excess of $1bn become more common in liability insurance: Allianz

Liability losses in excess of $1billion are becoming more commonplace for companies and are no longer confined to the US and Europe, according to an Allianz report.

Losses are on the rise as regulators become tougher, supply chains more complex and US-style litigation and compensation awareness spread around the globe, the report claims.

The AGCS (Allianz Global Corporate & Specialty) Global Claims Review analyses over 100,000 corporate liability insurance claims from more than 100 countries, with a total value of €8.85 billion, paid by AGCS, and other insurers, between 2011 and 2016.

Defective product/work incidents are the top cause of liability losses for businesses globally, according to the report. These account for almost a quarter (23 percent) of the value of all claims received.

The impact of collision/crash and slips/falls/falling objects are the most frequent liability claims for insurers, accounting for almost half (48 percent) of all claims by number, according to the report. However, the frequency of these claims has been declining due to improvements in risk management and better safety regulation, as well as a shift away from heavy industry.

Conversely, there is increasing potential for large liability claims to become more expensive, complex and international. The emissions testing issues in the automotive industry are an example of just how complex liability losses can become, giving rise to multi-jurisdictional regulatory investigations and litigation.

German carmaker Volkswagen has agreed to pay $4.3 billion in civil and criminal penalties in the US in the emissions scandal. In addition, clients are seeking compensation from VW for selling cars with emissions claimed to be higher than purported to be. Other carmakers are also under investigation for producing cars with emissions' levels exceeding the legally permitted.

The potential for more expensive liability losses around the world is increasing, particularly in relation to global product recalls, corporate liability, cyber and environmental incidents, the report claims. Additionally, new corporate liability exposures will arise from disruptive technologies and the more complex business models of the growing ‘sharing economy’.

Regulators around the world have become tougher, making corporations and their directors more accountable, while investor activism has been on the rise. At the same time, consumer protection laws have been strengthened in many countries and US-style litigation continues to spread around the globe. There is now greater awareness among consumers of compensation in countries such as China, Singapore and Japan. Meanwhile, liability claims for specialist insurance such as cyber risk and environmental liability are expected to increase in Asia as such coverages become more widely purchased.

Large environmental liability claims, such as pollution, are increasing, particularly from the mining and construction sectors. Such claims can be complex, costly and take a long time to settle. They can be particularly challenging in emerging markets, given cultural differences, language and legal systems that may be different to US and European courts.

Global class actions will become more significant. Although class actions by consumers and investors remain a largely US affair, collective redress is taking on a more international dimension, including in Europe.

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