The cost of business interruption is on the rise with the average cost of claims between 2010 and 2014 exceeding €1m, according to a report.
Research by Allianz Global Corporate and Specialty states that the increase is due to the ever greater interconnectivity of the global economy. A fire or a flood in a factory in one region, for example, causes a knock-on business interruption elsewhere, not just for the company itself but also for other businesses unable to operate because of the effect on a supplier.
Analysis of a sample of more than 1,658 business interruption claims with a value of more than €20,000 found that the top cause worldwide was fire and explosion, accounting for almost 60% of such claims by value.
However, the research found the cause of claims varied depending on location. In Asia,storm and flood-related losses were more likely to cause business interruption than fire or explosions which, according to the report, reflects “the region’s continuing economic development increasing exposure to natural hazards”.
The top cause of business interruption in Asia in the 2010-14 period was strike action. Storms caused the most disruption to business in the Caribbean, accounting for a third of claims by value.
The type of claims also differ depending on the line of the business. In the energy sector, fire and explosion was the top cause of business interruption, by both the number of claims (42%) and value (71%). These claims were also the top causes of business interruption in the property and mid-corporate sectors.
In the entertainment industry, the biggest interruptions were caused by cast members being unable to perform. Fire and explosion accounted for just 4% of the total number of claims and 5% of claims by value.
The report also examined 12 “very large events” that resulted in 149 claims, the total value of which ran to €1.34bn.
The report pointed to the potential knock-on effect of such events, such as the 2011 Japanese earthquake. The disaster triggered losses among European and US businesses which required vital components manufactured by Japanese suppliers, resulting in about 150 claim notifications to Allianz, mostly from companies based outside Japan.
Methodology: Allianz analysed 1,807 business interruption insurance claims valued at €20,000 in 68 countries between 2010-2014. These consisted of 1,658 “base claims” and 149 “very large events”. Claims figures include AGCS and co-insurers shares. The losses analysed are not representative of the industry as a whole; however, the report states that they give a strong indication of the major business interruption risks that dominate industrial insurance.
