Report shows rising liability exposures for insurance companies

Factors such as rising litigation, collective redress and large court verdicts, costly and frequent recalls in the automotive and food sectors, the disruptive impact of civil unrest and riots in a growing number of countries, and environmental concerns will likely impact businesses and their insurers in the future.

This has been worsened by the challenging global pandemic, according to a new report from Allianz Global Corporate & Specialty (AGCS) which highlights five trends for the sector.

According to the report, “Pricing in the liability insurance market may have turned in recent months, however, social inflation trends and large court verdicts continue in the United States. This combined with expanded exposures for non-us companies doing business in the US and an increase in automotive part recalls are putting pressure on liability insurers,” says Ciara Brady, global head of Liability at AGCS.

“Overlay this with the uncertain economic outlook, political instability and unknown impacts from coronavirus and this is creating a challenging market for clients, brokers and insurers alike.

“While we have to react to new loss trends in underwriting, AGCS remains committed to supporting our clients with solid risk transfer solutions and capacity to address today’s liability exposures.”

Social inflation is a phenomenon especially prevalent in the US, driven by the growing emergence of litigation funders, higher jury awards, more liberal workers’ compensation claims, as well as new tort and negligence concepts. The median settlement amount of the top 50 US verdicts from 2014 to 2018 nearly doubled from $28mn to $54mn.

Litigation funding is not only on the rise in the US, but also in Europe and elsewhere around the world, contributing to a growing trend of collective redress as hurdles for consumers are lowered to embark on class actions. Countries that may not be historically associated with this development, such as Saudi Arabia and South Africa, are classified as being “medium risk” that a company may face a collective action in these jurisdictions, according to AGCS’ litigation funding country guide.

According to AGCS experts, it is too early to identify a reverse trend, but court closures due to the Covid-19 pandemic may slow down social inflation as plaintiffs realise that it could take years before their case is tried before a jury and therefore may be more willing to settle outside court.