Business interruption now typically accounts for a much higher proportion of the overall loss than was the case 10 years ago, according to data from Allianz. The average large BI property insurance claim is now in excess of €2m (€2.2m: US $2.4m), which is 36% higher than the corresponding average property damage claim of just over €1.6m.

According to the new 'Global Claims Review 2015: Business Interruption In Focus' report from Allianz Global Corporate & Specialty, increasing interconnectivity of global supply chains is driving business interruption risk and losses. It says fire and explosion tops the UK top risks, with 77% of business interruption claims; and that human and technical factors dominate causes of business interruption, far exceeding impact of natural hazards. Meanwhile, non-damage causes of business interruption such as cyber-attacks, strikes and pandemics are increasing.

In its new report, AGCS analyses more than 1,800 large BI claims totalling over €3bn from 68 countries for the period 2010 to 2014. AGCS participated either as lead or as co-insurer in these claims. Both severity and frequency of BI claims is increasing, which are mostly caused by non-natural hazards such as human error or technical failure rather than from natural catastrophes. The top 10 causes of BI loss account for over 90% of such claims by value, with fire and explosion being the top cause, accounting for 59% of all BI claims globally. In the UK, fire and explosion claims topped the largest risk table with 77% of BI claims made, against the second highest which was faulty design, material and manufacturing claims at 11%. Each fire and explosion incident analysed globally averaged €1.7 million in BI costs alone.

“The growth in BI claims is fuelled by increasing interdependencies between companies, the global supply chain and lean production processes,” explains Chris Fischer Hirs, CEO of AGCS. “Whereas in the past a large fire or explosion may have only affected one or two companies, today, losses increasingly impact a number of companies and can even threaten whole sectors globally. With our experts researching this topic, we are well positioned to respond to this evolving risk.”

As manufacturing production continues to shift to Asia, so too have large claims. There is an increasing concentration of production sites and logistics hubs in certain areas. If such clusters are hit by natural catastrophes, or by other events such as a fire or explosion – as recently happened at the Tianjin port in China – disruptive effects can quickly multiply resulting in contingent business interruption (CBI) losses around the globe.

“BI exposures are largest for sectors with high levels of interconnectivity and technological values, as well as concentrations of risks in single locations such as automotive, semi-conductors and power and petrochemical plants,” says Alexander Mack, chief claims officer of AGCS. “While modern supply chains may be flexible and cost-efficient, they are also more vulnerable to disruption. CBI coverage is increasingly being seen as an essential part of today’s insurance policy for many businesses.”

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