Larger liability claims expected to become more expensive, complex: AGCS

There is increasing potential for “larger liability claims to become more expensive, complex and international, demonstrating the pervasive and long-term nature of liability losses,” suggests a new global claims review released Thursday by Allianz Global Corporate & Specialty (AGCS).

Industrial, environmental, product liability and financial lines claims in excess of US$1 billion – based on a 2015 Aon study that identified 86 corporate liability losses of that amount – “are more commonplace and are no longer confined to just the U.S. and Europe,” notes Global Claims Review: Liability in Focus – Loss trends and emerging risks for businesses.

The Aon report notes some 57 of the 86 losses were in excess of US$2 billion and 13 were more than $10 billion, “mostly from pollution incidents and regulatory actions,” the review states.

“While we have not necessarily seen an increase in the frequency of large liability claims, those that are filed are typically now more complex and with a higher spend than in the past,” Larry Crotser, head of AGCS chief claims office, North America, points out in the report.

“This can be seen in the cost of product liability claims, which have been rising, while we now also see a far bigger impact from environmental liability claims,” Crotser notes.

“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,” the review suggests.

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It notes that last October, Volkswagen agreed to a US$15 billion settlement with a group of U.S. federal and state regulators covering some 475,000 vehicle owners in the U.S. And this past December, the company “agreed to a further US$1 billion settlement to fix or buy back another 80,000 diesel vehicles sold in the U.S.,” the report adds.

“While very large liability losses can impact individual companies, they also can trigger systemic risks that can affect many companies within a given sector,” the review cautions, adding that 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 U.S. and European courts,” the report explains.

Add to that that global class actions by consumers and investors are expected to become more significant, moving from a primarily U.S. affair to more international.

“The Americas region, driven by the U.S., continues to be the largest liability market in terms of number of claims generated, accounting for over half of all claims analyzed,” the report states.

The liability claims analyzed in the review have an approximate value in excess of 8.85 billion euros or US$9.3 billion, the report notes.

While claims payments can vary widely in scale – reflecting the widespread nature of the risk landscape – major liability losses (amounting to greater than 1 million euros), such as aviation, shipping or terrorism incidents, account for fewer than 1% of claims by number. That said, these claims represent 74% of the total value of claims analyzed.

“Collectively, the top three causes of loss account for over 60% of the value of all liability losses analyzed, while the top 10 causes of loss for global businesses account for over 80% of all liability losses,” AGCS reports.

The move toward becoming more complex, expensive and international demonstrates a real shift.

Although the Top 10 causes of liability loss by value from 2011 to 2016 are well-established, the frequency of some claims is declining. The list below is based on analysis of more than 100,000 claims from 100-plus countries over five years.

Consider that the impact of collision/crash and slips/falls/falling objects are the most frequent liability claims for insurers, accounting for 48% of all claims by number.

“However, the frequency of these claims has been declining in many major casualty markets, a reflection of improvements in risk management and better safety regulation, as well as a shift away from heavy industry,” the report explains.

That said, there are some common losses that perhaps show signs of extending their reach in future. Human error, for example, ranks as the third top cause of liability loss (19%), but accounts for just 1% of all claims received by insurers.

“While this loss category focuses on the impact of everyday employee errors in the workplace, it also includes the effect of much larger events where human error has been a factor, such as in aviation or shipping accidents,” the report explains.

Then there is the potential impact of future influencers like new technology in the form of autonomous driving, 3D printing and the sharing economy.

“Broadly speaking, the frequency of claims is expected to decline, although this will be accompanied by new threats, such as increasing cyber and product liabilities and recall risks,” the report points out.

“Business models in the digital economy are more complex and without borders, making liability harder to apportion and claims more complex to settle. Automation is likely to lead to increased product liability for machinery and component manufacturers and software providers in particular,” it states.

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With regard to new manufacturing techniques like 3D printing, this “could play a positive role in addressing rising business interruption exposures, but could also make it harder to trace products through the supply chain,” the report notes.

The new environment will require appropriate expertise, AGCS expects.

“With liability claims becoming more complex and technical, investing in claims expertise and knowledge is just as important for liability lines as it is for property and specialty lines,” the report advises.

“As businesses grow ever more sophisticated and connected, insurers need to ensure that their claims handling processes stay up-to-date,” it emphasizes.