Report | November 2024
Five liability loss trends to watch
The range of exposures facing corporates, as well as subsequent loss and claims scenarios, have increased significantly in recent years with rising court costs and litigation, disruptive recalls, political violence and environmental issues among just some of the many challenges.
In this report, Allianz Commercial liability claims experts highlight five loss trends to watch in future, given their potential impact for risk managers and their organizations, broker partners and insurers.
1. The rise in nuclear verdicts
US juries have ordered a record number of supersized verdicts against companies in recent years. The number of nuclear verdicts against companies has almost tripled since 2020, while the median verdict value has more than doubled. Growth in the number and size of these verdicts is down to multiple drivers, including growing mistrust of corporates, the erosion of tort reform, changes in jury pool demographics, and the normalization of such verdicts.
Plaintiff attorneys use of psychological tactics is also contributing to the outsized value of verdicts, including the use of ‘reptile theory’ – where they incite fear and anger to influence juries – and ‘anchoring’ – where they fix an unreasonably large award in the minds of jury members. Nuclear verdicts are not just a problem for US companies. They also impact those international companies doing business in the US.
2. Pharma class actions grow more complex and volatile
Litigation in the pharmaceutical, chemical and food product sectors continues to grow, with increasing size and volatility of awards and settlements. Product liability claims in the pharmaceutical sector are typically costly and complex, with multiple parties, higher defense costs and higher awards.
Due to the nature of this industry, a harmful product or ingredient can spark multiple actions spanning many producers, resulting in a large accumulation of losses from multiple insureds from one event.
3. PFAS litigation mounts
A class of synthetic chemical used widely in industrial and consumer products such as food packaging, cosmetics and household goods and even firefighting foams since the 1940s, PFAS, also known as forever chemicals because of their resistance to degradation, have been the subject of mounting litigation in recent years.
This has largely been focused on three main areas: environmental pollution; water and waste treatment/contamination; and personal injury, such as people working directly with PFAS products like fire fighters. While litigation has so far concentrated on the US – environmental contamination-related PFAS settlements are already in the double-digit billions of dollars – there have also been cases elsewhere, for example in Europe. The extent of future litigation is uncertain, although further regulatory measures may play a part in shaping this.
4. European collective actions set to rise
Social inflation is predominantly a US phenomenon but moves to increase access to justice in Europe could result in a rise in collection actions in future. Collective actions are already becoming more prevalent in some European countries, as consumer groups start making use of collective redress frameworks and legislative change to chastise companies and fund remedial work.
Consumer protection agencies have already brought claims in areas like water quality and pharma.
5. The "Wild West" of "robo law"
In the legal sector, artificial intelligence (AI) is increasingly being used to aid litigation, despite a lack of consistent regulation or clear guidance.
AI could also influence the volume of future class action litigation, as plaintiff lawyers and litigation funders use it to help identify potential avenues for litigation, market class actions, and litigate cases more efficiently and cheaply.
Ultimately, there will always be new challenges facing insurers and their clients as technology advances and the world evolves. Finding solutions to mitigate the risks of these new threats is a key role that liability insurers and their broker partners play moving the industry forward.
Collaboration between all stakeholders is needed to manage the environmental, technological, and social advances that lie ahead. For example, greater cooperation, robust claims capabilities, and a tough stance to settlements are needed to mitigate the spiralling cost of liability claims and counter the upwards trend in social inflation.
Businesses can play their part by responsibly managing emerging risk trends. Governments could take responsibility with tort reform – accelerating legal changes that align plaintiff compensation with the needs of injured parties. Insurers are leveraging new technology to improve corporate liability underwriting and claims handling, resulting in improved data precision, interpretation and application to an ever-evolving world.
Top liability claims
Defective product incidents account for more than 40% of the value of claims, with the other most expensive causes of claims including collision/crash incidents, faulty workmanship/maintenance, and bodily injury.
Source: Allianz Commercial, Based on analysis of 40,742 insurance industry liability claims between January 2019 and December 2023. These claims have an approximate value of €5.02bn and include the share of other insurers involved in these claims.
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