Business insurance is a vital protection against risk and financial loss for millions of businesses across the UK. For businesses that employ staff, it is legally compulsory to take out employers liability insurance – but there are also a number of other lines of business insurance that are equally important, including public and products liability, business interruption insurance, cyber insurance and more.
In times of economic instability, for example during the pandemic or the current cost of doing business crisis, it can be tempting to reduce or stop paying business insurance premiums as a way of cutting costs. But, as the latest data on claims shows, this is usually a false economy.
Top causes of business insurance claims
A study from Allianz Global Corporate & Specialty (AGCS) revealed the major causes of claims for businesses between 2017 and 2021, and unveiled some concerning long-term trends in the industry.
Interestingly, 75% of financial losses during this period resulted from the top 10 causes of claims, while 45% of losses arose from the top three. The causes (by value of financial loss) are as follows:
- Fire/explosions (excluding wildfires) – 21%
- Natural catastrophes – 15%
- Faulty workmanship and maintenance – 9%
- Aviation collision/crash – 9%
- Machinery breakdown – 5%
- Defective product – 5%
- Shipping incidents – 3%
- Damaged goods – 3%
- Negligence/misadvice – 2%
- Water damage – 2%
The increase in financial losses caused by natural disasters is considered to be a particularly worrying trend. According to figures from Munich RE, 2021 saw losses amounting to $280bn, compared to $210bn in 2020 and $166bn in 2019.
Value of individual claims increasing
The AGCS research also found that claims severity has increased over the years, a trend the report attributed to higher property and asset values and materials shortages, among other reasons. With rampant inflation also putting significant pressure on costs, the risks of undervaluation and underinsurance are rising. The study gives the example of a commercial property destroyed in the 2021 Colorado wildfires, where the cost of rebuilding the property was found to be nearly twice the insured value.
Thomas Sepp, Chief Claims Officer and Board Member at AGCS, commented:
“Replacement costs more and replacement takes longer, and this means both the property damage and the business interruption loss are likely to be significantly higher. Updating insured values for all new contracts is therefore a pressing concern for insurers, brokers and insureds. If this doesn’t happen, our clients run the risk of not being fully reimbursed in the event of a loss, while insurers run the risk of underpricing exposures.”
Cyber attacks on the up
In 2016, AGCS was involved in under 100 cyber claims. In both 2020 and 2021, the figure was over 1,000. And this trend appears to be impacting other big players in the industry as well, with UK cyber insurance premiums shooting up by 32% year-on-year in June 2021 in response to the rapid growth in claims.
Despite not being among the top 10 claims causes in the AGSC report, it is clear that the threat of cyber-attacks is becoming more widespread, with some cases leading to claims worth millions of pounds. We wouldn’t be surprised if this risk made its way onto the list in the near future!
Keep your clients protected
With the already worrying trend towards underinsurance being exacerbated by high inflation and other compounding factors, it is vital to review your clients’ business cover to ensure they aren’t unduly exposed to risk. We can help with a suite of comprehensive insurance products spanning the Construction, Commercial and Professions sectors – just give your underwriter a call or email firstname.lastname@example.org.