The number of contingent business interruption (CBI) claims have been increasing year-over-year and exceeding previous highs, as global supply chains were hit repeatedly by storms, fires and the pandemic, said Allianz Global Corporate & Specialty’s (AGCS) Global Claims Review 2022.
But CBI is just one of several global claims issues to watch, the report noted, as inflationary pressures are expected to drive up claims costs, and claims activity remains uncertain amid the Ukraine invasion.
“The average BI property insurance claim now totals in excess of €3.8 million ($C5 million) compared with €3.1 million ($C4 million) five years ago. For large claims (>€5 million or $C6.6 million), the average property insurance claim which includes a BI component is more than double that of the average property damage claim,” the report said.
Business interruption is also the top concern for Canadian companies, according to a previous Allianz Risk Barometer report, and a top concern for 42% of global businesses.
Inflationary pressures will also drive up claims costs, predicted AGCS, and is expected to create underinsurance risk.
These sharp inflationary increases will be felt across most insurance lines in the short-to-medium term. Particularly, property and construction insurance claims are exposed to higher inflation, as rebuilds and repairs are linked to the costs of materials and labour, and Canada saw some inflation-driven claims costs increases in 2021.
Shortages of materials and longer delivery times will also inflate business-interruption values. Other lines of insurance — such as directors and officers, professional indemnity and general liability — may also be impacted by inflationary pressures via rising legal defense costs and higher settlements.
Faulty workmanship/maintenance, aviation collision/crash and machinery breakdown constitute three of the top five global causes of corporate insurance loss by value of claims in Canada, the report said, most of which may also be impacted by inflation.
Plus, high inflation raises the risk companies being underinsured or mis-declaring values. Insurers should expect “claims values and insured limits will likely be under increasing scrutiny,” said the report. Which means accurate declared values are key.
The Ukraine war is also likely to result in a significant, albeit manageable, loss for the global insurance industry. However, specialist sectors like aviation could suffer disproportionately, and it remains unseen how claims may develop moving forward, AGCS warned.
As of May 2022, around a dozen claims have been notified from AGCS as a result of the Ukraine invasion. “Industry-wide insured losses from the war in Ukraine are currently difficult to estimate, although the conflict has the potential to become one of the largest man-made catastrophe losses in modern times,” said the report.
With total losses estimated at between $10 billion and 35 billion, the conflict will be manageable for the industry. The brunt of the losses will likely fall to the reinsurers, rather than direct insurers.