While pricing in the liability insurance market may have turned in recent months, Allianz Global Corporate & Specialty (AGCS) has highlighted a number of market trends that continue to apply pressure on the sector’s insurers.
Social inflation, a phenomenon especially prevalent in the US, has been driven in recent years by a growing emergence of litigation funders, higher jury awards, and more liberal workers’ compensation claims.
Allianz pegs the median settlement amount of the top 50 US verdicts from 2014 to 2018 to have nearly doubled from $28 million to $54 million.
According to AGCS analysts, it’s 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.
Rising automotive repair and recall costs has also been flagged by AGCS, with a growing number of recalls in the automotive industry in both the US and Europe in recent years.
In the US, there were 966 safety recalls affecting well over 50 million vehicles in 2019 – more than two every day.
In Europe, the number of recalls reached 475 for 2019 – the highest figure for a single year in the 2010s and up 11% year-on-year.
The increasing complexity of technology is another significant driver of industry losses, due to factors such as increased time and labor rates to make repairs, more specialized training for mechanics and other repairers, and the increasing price of parts.
Additionally, political violence increasingly causes property damage, disruption and loss of attraction and revenues to many businesses.
AGCS says there are numerous insurance claims notified under strikes, riots and civil commotion or looting insurance coverages.
According to analysts, the coronavirus outbreak may have temporarily suppressed civil unrest in some countries, but the underlying social issues have not been solved, and further protests will likely occur in the near future.
“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,” said Ciara Brady, Global Head of Liability at AGCS.
“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.
“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.”