In one of the industry’s most comprehensive analyses, AGCS has identified the top causes of loss for companies from more than 530,000 insurance claims in over 200 countries and territories that it has been involved with between 2017 and 2021 (typically a number of insurers provide coverage jointly considering the huge values at stake in the corporate sector). These claims have an approximate value of €88.7bn, which means that the insurance companies involved have paid out – on average – over €48mn every day for five years to cover losses.
The analysis shows that almost 75% of financial losses arise from the top 10 causes of loss, while the top three causes account for close to half (45%) of the value. Despite improvements in risk management and fire prevention, fire/explosion (excluding wildfires) is the largest single identified cause of corporate insurance losses, accounting for 21% of the value of all claims. Fires have resulted in more than €18bn worth of insurance claims over five years, according to the analysis. Even the average claim totals around €1.5mn.
Natural catastrophes (15%) ranks as the second top cause of loss globally by value of claims. Collectively, the top five causes (based on more than 20,000 claims around the world) – hurricanes/tornados (29%); storm (19%); flood (14%); frost/ice/snow (9%) and earthquake/tsunami (6%) account for 77% of the value of all disaster claims. Hurricanes and tornados are the most expensive cause of loss, driven by the fact that two of the past five Atlantic hurricane seasons (2017 and 2021) now rank among the three most active and costliest on record, as well as recent record-breaking tornado activity. Insurers are also seeing new scenarios. During 2021, the ‘Texas Big Freeze’ in the US and flooding in Germany stood out as events that were both large but had unexpected claims. For example, the ‘Texas Big Freeze’ in February caused huge disruption to infrastructure and manufacturing, with many companies forced into shutdowns by widespread power outages, resulting in property damage and in some large contingent business interruption (CBI) losses. This event alone is estimated to have caused economic losses up to $150bn.
Faulty workmanship/maintenance incidents are the third top cause of loss overall (accounting for 9% by value) and are also the second most frequent driver of claims (accounting for 7% by number, ranking only behind damaged goods with 11%). Costly incidents can include collapse of building/structure/subsidence from faulty work, faulty manufacturing of products/components or incorrect design.
The other top 10 causes of loss are: aviation collision/crash (#4; 9%), machinery breakdown (#5; 5%), defective product (#6; 5%), shipping incidents (#7; 3%), damaged goods (#8; 3%), negligence/misadvice (#9; 2%) and water damage (#10; 2%).
Business interruption losses on the rise The claims analysis also highlights the growing relevance of BI as a consequence of losses in property insurance, and the fact that 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. The average BI property insurance claim now totals in excess of €3.8mn compared with €3.1mn five years ago. For large claims (>€5mn), the average property insurance claim which includes a BI component is more than double that of the average property damage claim.
The number of CBI claims has increased year-on-year for the past five years, exemplifying the growing interdependence and complexity of corporate supply chains. The automotive industry alone has seen several CBI events during this period, with the overall growth in CBI claims exacerbated in the last two years by a large loss in the semi-conductor manufacturing sector and the ‘Texas Big Freeze’ event. The claims from these two events more than tripled the number of CBI claims in the previous three years.
While not appearing in the top 10 causes of loss, the number of cyber claims has significantly increased over the past few years, driven by the rise of threats such as ransomware attacks, but also reflecting the growth of cyber insurance. AGCS has been involved in more than 1,000 cyber claims in both 2020 and 2021, compared with fewer than 100 in 2016. Claims frequency has begun to stabilize however, albeit at elevated levels.