Business Interruption Claims on the Rise: Allianz

December 10, 2015

The average large business interruption (BI) property insurance claim is now in excess of $2.4 million, 36 percent higher than the corresponding average property damage claim of just over $1.7 million, according to a report from Allianz Global Corporate & Specialty (AGCS), Allianz’s specialist insurer for business and industrial risks.

AGCS’s “Global Claims Review 2015: Business Interruption In Focus,” analyzed more than 1,800 large BI claims totaling over $3.2 billion from 68 countries from 2010 to 2014. The study concludes that “both the severity and frequency of BI claims is increasing, and that BI now typically accounts for a much higher proportion of the overall loss than was the case 10 years ago.”

AGCS CEO Chris Fischer Hirs explained: “This growth in BI claims is fueled by increasing interdependencies between companies, the global supply chain and lean production processes. Whereas in the past a large fire or explosion may have only affected one or two companies, today losses increasingly impact a number of companies and can even threaten whole sectors globally. With our experts researching this topic we are well positioned to respond to this evolving risk.”

Top Global BI Loss Claims
According to the AGCS analysis, the majority of BI claims originate from technical or human factors (88 percent) and not from natural catastrophes. The top ten causes of BI loss account for over 90 percent of such claims by value, with fire and explosion being the top cause, accounting for 59 percent of all BI claims globally.

AGCS listed the top causes of BI losses globally by total value for the years 2010 to 2014 as follows:
1 – Fire and explosion
2 – Storm
3 – Machinery breakdown
4 – Faulty design/material/manufacturing
5 – Strike/riot/vandalism
6 – Cast loss (entertainment)
7 – Flood
8 – Collapse
9 – Human error/operating error
10 – Power interruption

In North America, fire and explosion account for 52 percent of BI loss followed by Storm (14 percent), and Cast Loss in the Entertainment Sector (eight percent).

BI Industry/Sector Trends

The study concluded that average BI losses “are highest by value for claims originating from energy $4.3 million and property $2.4 million lines of insurance, followed by engineering $1 million and entertainment $300,000.”

It also, found that the “cost of large energy claims has been rising, with BI now accounting for a higher proportion of loss totals, as exposures have increased due to larger onshore energy facilities and growing interdependencies between companies resulting in regional contingent business interruption (CBI) claims if one plant is disrupted.

“In the entertainment sector, illness or an accident of a cast member is the most prevalent cause of interruption, accounting for 60 percent of claims. Injury to a major star can delay the production, leading to multi-million dollar claims. Costly visual effects in film production, which often require contractual commitments with third party specialists, can cause more expensive claims through production delays.”

There are also new and emerging risks, which AGCS said are due to the “effects of interconnectivity and interdependencies,” that have become a “growing concern, and play an important role in many risks now appearing on the horizon, such as climate change, cyber, pandemics and power outages.”

AGCS Chief Claims Officer Alexander Mack indicated that “BI exposures are largest for sectors with high levels of interconnectivity and technological values as well as concentrations of risks in single locations such as automotive, semi-conductors and power and petrochemical plants.

“While modern supply chains may be flexible and cost-efficient, they are also more vulnerable to disruption,” he continued. “CBI coverage is increasingly being seen as an essential part of today’s insurance policy for many businesses.”

Source: Allianz Global Corporate & Specialty

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