According to a recent report by Allianz Global Corporate & Specialty (AGCS), the potential for more expensive liability losses is increasing, particularly in relation to global product recalls, corporate liability, cyber and environmental incidents, identifies defective product or work, crash and human error incidents as the largest causes of liability loss for businesses, based on analysis of insurance claims.
The United States continues to be the world’s largest liability market generating both the highest number of claims, and many of the largest claims according to value. While class actions by consumers and investors remain largely a United States trend, a growing number of countries now also allow for collective actions. Conversely, foreign companies are increasingly being sued in the United States. Losses in excess of $1 Billion are becoming more commonplace and are no longer confined to the United States and Europe, as regulators become tougher, supply chains more complex and United States-style litigation and compensation awareness become prevalent around the world.
The report comprised an analysis of over 100,000 corporate liability insurance claims from more than 100 countries, with a total value of $9.3 Billion paid by AGCS and other insurers, between 2011 and 2016. Over 80% of losses arise from ten causes:
- Defective product/work
- Human error
- Accidental nature/damage
- Slips/falls/falling objects
- Water/fire/smoke damage
- Environmental damage
- Natural hazards
- Property damage
Defective products or work is the largest cause of loss, accounting for almost a quarter of the value of all claims (23%). The average loss costs businesses in excess of $280,000 with the cost of product recalls being a major driver. With complex global supply chains and large numbers of products and suppliers being concentrated on a smaller number of larger companies, product liability and recall claims have been becoming larger and more challenging to settle. Generally, the number of recalls has been steadily rising with increased focus on product and workplace safety, as well as more proactive regulation. With an increasing proportion of goods now manufactured in Asia, product liability claims have become a significant driver for large liability claims from China. Growing supply chains, tightening of safety regulations and faster dissemination of information are all factors in the increasing number of incidents, which can have an adverse impact on a company’s reputation.
Pharmaceutical products, such as Johnson & Johnson’s Xarelto, are unique as medical activities and possible side effects are extremely diverse, causing pharmaceuticals to be authorized before going to the market, primarily through the analysis of data derived from clinical trials. The level of information regarding drugs and their risks is constantly evolving. It takes specific clinical research and pharmacology experts to keep up with recent developments.
Significant improvements in automotive and aviation safety may have reduced the number of collisions and crashes in recent years but these are still a major driver of liability losses, accounting for more than a fifth of the value of all claims (22%), as well as generating the most claims. In the United States, road traffic fatalities have been decreasing for the past twenty years, from a 1972 peak of 54,589 to around 35,000 in 2015. Air travel is another area where accident rates have fallen dramatically with improvements in risk management, technology and safety. Fatal accidents have fallen every decade since the 1950s, despite massive growth in air travel. In 1959, there were 40 fatal accidents per one million aircraft departures in the United States, falling to around 0.1 per million today.
Human error (19%) is the third top cause of loss, driven by incidents which result in major losses, such as aviation and shipping events or employee injury. High frequency claims like slips and falls and workplace accidents have been reducing with more stringent safety regulations and better risk management, as well as a shift away from heavy industry in favor of services.
Digitalization and the growing use of new technologies are likely to lead to a further shift in the liability risk landscape. Overall, the frequency of claims is expected to decline as trends such as autonomous driving improve road safety. However, technology will also bring new liability threats such as increasing cyber, product liability and recall risk. Automation is likely to lead to increased product liability risk for machinery and component manufacturers and software providers. New data protection laws around misuse or breaches of data will increase cyber liability for companies, potentially resulting in heavy fines and penalties.
For more information, please contact The Ahearne Law Firm, PLLC at (845) 763-4100 for an initial consultation and case evaluation.
Liability losses are ubiquitous and can range from minor incidents to major disasters, always causing third party damage or injury. The risk landscape for companies is constantly shifting with liability risks on the rise globally. New technologies such as the Internet of Things, autonomous mobility or 3D printing will create fundamentally new liability scenarios for companies in almost every sector.”
– Alexander Mack, AGCS Board Member and Chief Claims Officer.