Marine accidents, destructive fires and plane crashes were the most costly disasters for global businesses in the last few years, new research shows, and insurance claims from these risks and others are poised to grow. as changes in technology, demographics and the economy reshape the industry.
A new global report from global insurer Allianz SE looked at the insurance claims over €100,000 ($141,268) that the company has been involved in from 2009 to 2013 to analyze the sources of major business risk. The research spanned nearly 150 countries and included 11,427 claims from six sectors likely to see large-scale devastation including aviation, energy and property and engineering.
So far this year, no Canadian disaster has claimed a spot in the top ten major losses reported, but last year the $400-million (U.S.) train derailment at Lac-Mégantic, and the $500-million (U.S.) fire and explosion at a Regina, Sask. oil refinery on Christmas eve, both cracked the top 10 largest disasters not caused by natural catastrophes, which cost $8.1-billion in total.
The Insurance Bureau of Canada (IBC) said insurers are keeping an eye on emerging technologies in oil and gas, as well as on proposed federal legislation that could increase the liability coverage required for offshore oil and gas companies and nuclear power plants.
"As new technologies emerge or events occur, the insurance industry is quick to adapt to the needs of the market," said Celyeste Power, spokeswoman from the IBC, adding that the Canadian commercial insurance industry is competitive.
The energy industry is responsible for the world's largest insured losses tallied by value, with oil and gas companies posting claims of $28.4-million on average in the five year period. Last year nine of the top 20 largest claims on the list came from this sector, totalling 40 per cent of the expanses at $3.2-billion.
The largest disaster in the first nine months of 2014 was also tied to the energy sector. A fire at a Siberian refinery complex cost the insurance industry about $800-million.
And larger oil field operations on and offshore will only increase claims.
"We see more and more claims from large, interrelated installations," said David Wilson, energy claims specialist at Allianz Global Corporate & Specialty (AGCS), in the report. "Plants are getting bigger and have more clients and customers," he added.
The world's largest source of claims is ship groundings. Marine incidents linked to issues such as ships catching fire, sinking and colliding accounted for 45 per cent of the claims Allianz looked at. As shippers increasingly use larger vessels to drive economies of scale, the costs of removing wrecks has increased.
The report also dug into the mounting costs of business interruption claims, which many Canadian property and casualty insurance executives say is an increasingly expensive and complicated kind of insurance to provide.
Business interruption insurance covers income lost as a result of a disaster. As supply chains become more global, companies are exposed to disaster risk in more parts of the world at once. Business interruption claims can be costly – in 2013 they were 32 per cent higher on average than the direct costs of property damage at an average loss of $1.4-million per claim, the study found.
Businesses losses and corporate insurance claims are set to be complicated by changes in technology, economic growth, climate change, and the fast developing legal and regulatory framework, according to the report. As the world's population grows and urban centres amass more assets disasters have the potential to do more damage. The value of claims is increasing as a result.
Improvement in technology may help or hinder the insurance industry's risk management efforts, the report notes. Some businesses could become safer with technologies help, such as adding skilled robots into manufacturing processes, but other innovations could make insurance more complicated, such as the move toward larger ships, fracking for natural gas or drilling for oil in the Arctic.
The insurance industry is particularly challenged to adapt to risks from cyber-crime, which cost the Canadian economy about $3.2-billion (Canadian) last year according to research from Center for Strategic and International Studies (CSIS) in Washington, D.C. Other studies show the costs of these data breaches are rising for companies.
The threat of malicious attacks on computer systems "connects so many types of risk, touching on private individuals, infrastructure, companies and public bodies," said Michael Bruch, emerging risks specialist at AGCS, in a statement. "Power connects everything so a cyber-attack that brings down the power grid and damages generators would have massive implications. A failure of the power grid is a real and significant risk."