Allianz Global Corporate & Specialty (AGCS) analysis highlights how CBI claims have spiked following global supply chain disruption and the growing relevance of business interruption as a consequence of losses in property insurance.
This article is part of the
Global Risk Dialogue - 02/2022
Contingent business interruption (CBI) claims reached a new level over the past year, with the number of claims far in excess of recent years.
The sharp increase exemplified the growing interdependence and complexity of corporate supply chains, which were hit by a combination of pandemic-related disruptions, extreme weather, and, more recently, Russia’s invasion of Ukraine. The automotive industry alone saw several CBI events during this period.
In February 2021, the ‘Texas Big Freeze’ in the US caused massive disruption to infrastructure, with many companies forced into temporary shutdowns by widespread power outages. Record freezing temperatures caused by Winter Storm Uri had cascading effects on companies and services reliant upon power, including water, transport and medical services. The event is estimated to have caused economic losses up to $155bn [1], while Uri caused $15bn [2] in insured losses nationwide.
Less than a month later, a fire at a semiconductor plant in Japan added to the growing global shortage of microprocessors, sending a ripple effect through global supply chains, hitting production in the automotive and electronics industries. The automotive sector was again hit with supply chain problems from the conflict in Ukraine, with the country being an important supplier of parts.
Opaque and complex exposures
Winter storm URI, Source: NASA
Global supply chains have created opaque and complex exposures in recent years, with many companies having been reliant on a small number of key suppliers for materials, parts and services, according to Scott Inglis, Head of Global Practice Group for Property and Business Interruption Claims at AGCS. The interconnectivity of supply chains results in more CBI exposures and can have a substantial impact on various industries, sometimes in excess of $1bn or more.
Fires, natural catastrophes, cyber-attacks and conflicts have added to existing strains on supply chains caused by the Covid-19 pandemic, with shutdowns at manufacturing plants and ports in China, delays to shipping and labor shortages. The ‘Texas Big Freeze’ in particular led to a number of large CBI claims that AGCS was involved with, as companies took several months to ramp up production following initial power outages.
The number of claims from this event and the large loss in the semiconductor manufacturing sector more than tripled the number of CBI claims in the previous three years – overall CBI claims have increased in number year-on-year for the past five years.
“The corporate world is now so interconnected and complex, businesses rely on each other for goods, services and infrastructure,” says Inglis. “Underwriters need to understand accumulations of exposures within corporate distribution and value chains, as well as the impact of disruption and actions taken to mitigate them.”
AGCS’ Global Claims Review 2022 report analyzes more than 530,000 insurance claims from 2017 to 2021 with a value of €88.7bn, highlighting the top causes of loss for companies and other emerging loss trends to watch. Download the .
Average BI claim value rising
Costs associated with the impact of business interruption (BI) following the aftermath of a loss event can significantly add to the final bill from any incident and AGCS claims analysis also highlights the growing relevance of BI as a consequence of losses in property insurance.
The average BI property insurance claim now totals in excess of €3.8mn based on analysis of 2,379 relevant insurance industry claims notified between January 1, 2017 and December 31, 2021. This is compared with €3.1mn over a previous five-year analysis period ending in 2017.
For large claims (>€5mn), the average property insurance claim which includes a BI component is more than double that of the average property damage claim. Many expect property and BI claims to become even more expensive in future given the consequences of recent sharp increases in inflation around the world. The rising cost of rebuilds, repairs and labor, together with potential shortages of materials and longer delivery times and waiting periods could all further inflate BI values.
Our expert
Scott Inglis
Head of Global Practice Group for Property and Business Interruption Claims
Annual survey identifying business risks
Allianz Risk Barometer
Top 3 global business risks in 2023
- Cyber incidents (34%) - 2022 rank: 1 (44%)
- Business interruption (34%) - 2022 rank: 2 (42%)
- Macroeconomic developments (25%) - 2022 rank: 10 (11%)
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