Global reinsurance giant Swiss Re has released a new report which forecasts that global liability premiums will grow by 4.7% on average each year up until 2040.
This is expected to reach USD 583 billion and account for 13% of all Property & Casualty business (P&C).
The repost noted that this will result from continued growth in liability exposures, these in turn largely driven by new and emerging risk factors.
Swiss Re believes that economic development will remain the strongest long-term driver of liability risks, as historically, liability claims have displayed a strong cyclical nature but notably, on average they have also grown faster than GDP.
The reinsurer expects that social inflation will be an important driving force for liability exposures over the next 20 years, whilst leading to premium volume expansion in excess of the rate of economic growth.
An expansion in the scope of liability and societal shifts drove surges in liability claims in the mid 1980s, early 2000s and late 2010s.
And since 2015, there has been a strong rise in casualty claims in the US, due to the increased use of applied psychology tactics by the plaintiffs’ bar, more litigation funding, and juries’ growing consciousness of social justice and eroding trust in corporations and institutions.
For vehicle negligence and general liability, the probability distribution of legal awards has become more skewed towards large legal awards.
There has also been an accelerating severity in average awards. Legislation and case law is also expanding the scope of legal liability and drive up liability claims costs.
For example, in November 2020 the European Parliament and Council adopted EU Directive 2020/1828, with the goal of standardising mass torts across the EU. This will likely lead to an increase in claims activity once it comes into effect in 2023.
Technological and environmental risk factors also have the potential to broaden the scope of liability exposures, for insurers, accelerating historical trends.
Swiss Re expects artificial intelligence (AI) to be a primary transformative technology for industries such as manufacturing, transportation, and healthcare, due to AI systems having the ability to make mistakes, the question of how to allocate liability amongst the parties involved remains open.
The report also noted that climate change litigation has gained momentum recently, increasing in volume, scope and geographical coverage since the Paris Agreement in 2015.
This has led to an increase in environmental liability litigation coincides with a growing focus on ESG criteria, which are increasingly part of corporate pledges and disclosure requirements.
To date, social inflation has had most impact on large corporate risks in the umbrella and excess liability space, commercial auto, medical malpractice and directors & officers liability. For exposure growth to yield premium growth, the exposures must remain insurable.
Insurers must continually adapt to the evolving social, technological, and environmental context.
These new risks will require new modelling approaches and ongoing monitoring to ensure accurate pricing. Investment and innovation in product development and data and analytics tools are necessary to expand the range of insurable risks.
