Life moves pretty fast, so our insurance needs to be faster.
The insurance industry has kept up with the world's ever-evolving demands by infusing technology to connect consumers and agents on a greater scale and reduce risk.
But with the world on its heels, the insurance industry has opened itself up to more liabilities. Fortunately, change presents greater coverage opportunities - and a way to keep up with any emerging trends.
Allianz's Global Claims Review report, which focuses on global developments in liability-related insurance over the period 2011 to 2016, offers a comprehensive analysis of gaps in coverage and emerging developments to keep track of.
Liability losses can lead to big claim payments which can vary enormously in scale. Liability exposures for corporations can surface from third parties, products and the environment, among others. While these liabilities cannot be understated, the insurance industry will also want to closely watch developments in the world of liability insurance.
With that in mind, keep reading to see Allianz Global Corporate & Speciality (AGCS) 10 emerging developments in liability insurance.
Claims are becoming more expensive and complex, with a noticeable rise in large environmental liability claims, pharmaceutical and automotive product liability and product defect/recall. (Photo: Shutterstock)
1. Large liability claims becoming more expensive
Worldwide, the potential for large liability insurance claims has been increasing as claims become more expensive and complex. Industrial accidents and pollution events are presenting greater possibilities; total recalls from auto companies and Samsung have become normalized.
Although recent years have seen a noticeable rise in large environmental liability claims, pharmaceutical and automotive product liability and product defect/recall are the main drivers for large liability claims globally.
Larry Crotser, head of AGCS Chief Claims Office, North America, said there hasn't been an increase in the frequency of large liability claims, but they are becoming more complex and result with a higher spend than in the past.
Additionally, while they are rare, large corporate liabilities can be catastrophic in scale, involving multiple jurisdictions, large numbers of claimants and other interested parties. The emissions testing issues in the automotive industry are an example of just how complex liability losses can become.
While the empirical science behind climate change continues to be contested, insurers must brace for large environmental liability claims across the globe. (Photo: Shutterstock)
2. Environmental claims are increasing
Whether you believe in climate change or not, liability insurers cannot afford to disregard such a pressing matter.
Over the past five years, insurers have experienced a significant increase in large environmental liability claims from the mining and construction sectors, particularly from Latin America.
One of the largest losses in 2015 involved the Samarco mine in Bento Rodrigues, Brazil. The disaster resulted in 19 deaths, as well as extensive pollution and property damage. More than 700 people were left homeless by the disaster. As a result, Samarco and its owners agreed to settle a $48 billion compensation claim from federal prosecutors by June 2017.
Peter Oenning, Global Head of Claims Liability, AGCS, said that environmental liability claims can be particularly challenging in emerging markets, especially due to cultural differences, language and legal systems that may be less consistent than courts in the U.S. and Europe.
Brazil is one country which has experienced significant losses and setbacks in a series of large industrial claims. (Photo: Shutterstock)
3. Large industrial claims are potentially materializing in Latin America
More often than not, large liability claims are tied together in an intricate web of factors.
One example again originates in Brazil following the fire at a fuel storage terminal back in early April 2015. The Port of Santos, one of Latin America's largest transit hubs, disrupted operations at the nearby Brazil Terminal Poruario and forced several vessels to divert following the fire and explosions that occurred.
Santos Badin, Claims Manager, AGCS Brazil, said, "The incident shows the potential for a large loss in Latin America where multiple third parties are located close together and where multiple policies are triggered."
In addition to material damage, the fire also caused substantial disruption to port facilities and nearby businesses, with a loss of access and pollution-related losses.
4. Product liability and recall claims are becoming more challenging
As large companies encompass a greater portion of products and suppliers, product liability and recall claims are becoming larger and more challenging to settle.
U.S. automotive recalls have hit a record high for the past three years in a row, culminating in the recall of around 53.2 million vehicles in 2016. One of the major cases involved faulty airbags by Japanese manufacturer Takata. The corporation has agreed to plead guilty to criminal wrongdoing and pay approximately $1 billion in penalties.
Meanwhile, pharmaceutical liability and recalls also continue to generate large claims. As of October 2016, there were believed to be around 1,700 similar lawsuits in state and federal courts.
Larry Crotser, Head of AGCS Chief Claims Office, North America, said, "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.
While the U.S. is known for being the world's largest liability market, trends show international markets are accounting for an increasing proportion of the global liability market. (Photo: Shutterstock)
5. Liability on the rise outside of the U.S.
While the U.S. has touted its powerhouse status for decades, it's a bit more reserved about the fact that it continues to be the world's largest liability market. It is the country that generates both the highest number of claims and the largest claims according to value.
However, trends in recent years show international markets accounting for an increasing proportion of the global liability market.
According to data from NERA Economic Consulting, the number of securities class actions and the median settlement values have remained stable over the past five years. Additionally, data indicated a record number of dismissals, coupled with settlement rate that remains close to an all-time low.
Outside the U.S., however, liability claims are increasing, particularly in emerging markets, but also in some parts of Europe.
"We do see a trend towards greater liability claims outside the U.S. with increased awareness of consumer rights and compensation in Asia and Europe," said Oenning.
Class action lawsuits are growing in a number of countries which have adapted their attitudes towards collective action. (Image: Shutterstock)
6. Global class actions to become more significant
Class action lawsuits occur largely in the U.S. but has seen growth on the international scale. A growing number of countries now allow for collective action,
A growing number of countries now allow for collective action. Recent years have seen a notable increase in shareholder actions pop up in Europe, Australia and Canada. Securities class action exposures in Australia are now second only to those of the U.S.
Brazil, Colombia, Mexico, Argentina, Chile and Venezuela all have some form of collective redress. And while class actions are still very limited in Europe, a number of countries have introduced legislation that allows for some form of collective redress for consumers and investors.
There have been some notable uses for collective redress in Europe. In March 2016, Dutch bank Fortis agreed to a $1.2 billion settlement with investors under Dutch collective settlement procedures. Investors in Volkswagen have also looked to use collective redress legislation in the Netherlands and Germany to bring claims for losses related to emissions testing.
As companies gain greater control of certain markets, they are facing growing liability exposures overseas as regulations increase and greater scrutiny is applied to said companies. (Image: Shutterstock)
7. Overseas liability exposures growing for new global giants
Whether its investor-led litigation in the U.S. or product liability claims in North America and Europe, both Latin American and Asian companies increasingly face overseas liability exposures.
Directors and officers and product liability incidents are the main drivers behind large liability claims in Asia, where companies are under increasing scrutiny and regulations in overseas markets.
In 2015, Chinese companies accounted for around half of all class actions involved foreign companies in the U.S. In particular, securities claims against Chinese companies listed in the U.S. were among the highest severity liability claims. More than 50 percent of the settlements were under $10 million, but a handful of claims have been in excess of $1 billion in the past decade, according to Patsy Wong, head of long tail claims Hong Kong & Greater China, AGCS.
Meanwhile, Brazilian companies are also increasingly facing the prospect of liabilities overseas. Many investors have filed class actions in the U.S., including those for environment disasters, tax liabilities and bribery and corruption allegations.
Both Brazilian and Chinese companies are now buying more cross-border liability insurance programs and are looking to insurers to help manage liability claims across their global operations.
8. Fewer accidents, but general liability increases globally
Increasingly stringent safety regulations and better risk management have assisted in claims like slips and trips and workplace accidents being reduced. Big increases in vehicle safety have significantly reduced road traffic accident injuries over recent decades.
In the U.S., road traffic fatalities have also been decreasing for the past two decades - they have fallen from a 1972 peak of around 54,589 to around 35,000 in 2015. Air travel has also seen a decline in accident rates with improvements in risk management, technology and safety.
While the frequency of personal injury claims has been trending down in the U.S. and Europe, everyday claims in what were once the emerging markets are increasing with economic development. Generally speaking, liability claims have been increasing over the past five years in Latin America, with increased insurance penetration wand with greater awareness of compensation among consumers; the picture is similar in Asia, where, broadly speaking, personal injury claims have been increasing as consumers have become more inclined to seek compensation from insurance.
Technology allows insurance to expand but simultaneously expands the potential liability claims insurers may face. (Photo: Shutterstock)
9. Technology to drive big shifts in liability claims
If it hasn't occurred yet, it will soon.
Technology is likely to be a major driver of liability claims. While the frequency of claims is expected to decline, there is an expected shift in liabilities relating to manufacturers and growing cyber liabilities.
Consider the growing number of smart factories. Fewer claims for workplace accidents are expected to occur, while driverless cars are expected to drastically reduce accident rates over time. But automation is likely to lead to increased product liability for machinery manufacturers, component manufacturers and software providers.
The growing "sharing economy" is likely to become more complex and potentially more challenging to apportion. For example, a road traffic accident involving an autonomous vehicle could the vehicle manufacturer, software provider and the fleet operator, as well as third parties involved in the accident.
The increasing digitalization of society and business also creates new liabilities, such as personal data and privacy exposures, as well as liabilities around business interruption, cyber security, directors and officers and product liability. According to the 2017 Allianz Risk Barometer, cyber risk now features in the top three corporate risks overall and exposures are increasing.
Without innovation, the insurance industry is at risk of falling behind in terms of the tools and talent at their disposal, and the rising technical nature of claims that are occurring throughout. (Photo: Shutterstock)
10. Increasingly technical nature of claims, talent issues and innovative tools
The insurance industry is aging and is at risk of falling behind if it fails to invest in future talent - especially millennials.
As businesses grow ever more sophisticated and connected, insurers need to ensure that their claims handling processes stay up-to-date. With an increase in interconnected risks and globalization, large liability claims are becoming increasingly complex and expensive. They typically involve more parties, can be multi-jurisdictional and can involve large numbers of claimants.
Not only do claims teams need technical knowledge, they also need the resource to deal with multiple insureds involved in the same litigation, but with differing interests.
Liability insurers are also facing the challenge of a low yield environment and low premium rates, which creates pressure on expenses and can create tensions in claims handling.