Claim trends in W&I insurance

AIG has recently released the fourth annual edition of its M&A Global Claims study. As the data is based on AIG’s global W&I business, it can be difficult to identify any specific NZ and Australia trends.  However, based on our experience the study seems to confirm what we are seeing in the Australasian market.

The report can be accessed by clicking here (see 2019 “International” version). The report is based on policies issued from 2011-17.  Most of the data focuses on frequency (notices received), but there is also some information on severity.  Some key trends from this year’s study include:

  • Overall claim frequency is steady at about 20% (so one claim in every five policies), but for larger transactions (between US$500m and US$1b in size) that has increased to 26%. For sub $100m deals reported claim frequency is lower at about 18%.
  • The proportion of material claims with incurred loss greater than US$10m has increased from 8 to 15%, with the average loss in that band steady at US$19m.

The increase in claims severity is probably the standout feature of the study, with an almost doubling of the number of claims that are in excess of US$10m.  While we are seeing claims under W&I policies at a frequency that is similar to the global rate, we haven’t seen a significant increase in large claims.  However, there is real likelihood that the number of New Zealand claims will increase based on employment/compliance with laws claims in relation to holiday pay issues that come to light.

With a higher number of large claims on a global basis, there is a risk that premiums may need to increase, however we have not yet seen any evidence of this in Australasia with pricing currently stable (or even decreasing).  What appears to be happening instead is that insurers are taking a harder line on the risks they are willing to insure, and placing more emphasis on the due diligence undertaken in areas that tend to give rise to the most frequent claims.

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