Q1 Claims Trends
Disputes Related to Seizure of Aircraft may have Broader Implications
A dispute of seismic proportions is heading to trial in London’s High Court following a recent hearing whereat the judge agreed with insurers to consolidate claims made by aircraft and engine leasing firms against their respective Insurers. The claimants are collectively seeking in excess of $5billion from their respective insurers under either all-risks, or war coverages purchased from various insurers. Insurers have denied the claims, arguing that the seizure of the aircraft and engines by Russia following the sanctions imposed by western governments does not constitute physical loss, or that the aircraft and engines are no longer subject to lease agreements, or that sanctions imposed by governments prevent Insurers from providing coverage. The outcome will have significant implications for the Aviation sector, policyholders and policymakers. If the policyholders prevail, a $5billion plus impact to insurers and reinsurers could have a wider impact on rates and coverages beyond the Aviation sector. If Insurers’ defense on the grounds of ‘sanctions’ succeeds it will raise interesting considerations for future events and risk mitigation.
Parametric Solutions are Expediting Claims Payments to Clients
Parametric policies are gaining traction with clients driven by certainty and speed of claim settlement. In recent years, for example, some clients in Asia have benefited from quicker loss payouts following natural catastrophe events. Parametric products have been tested on both earthquake and typhoons with an overwhelmingly positive client experience. Claims settlements occurred in less than 45 days from the trigger events’ occurrence. This was significantly faster than some insurers’ claims performance on traditional products, for the same event.
Speed and frictionless claims adjustment is a powerful draw, especially for clients where cash flow is vital to their business. While clear benefits have accrued to some clients, pre-purchase loss scenario testing may be prudent to compare outcomes as to value and timing of funds. For example, from a claims perspective, a hybrid structure may be optimal for some larger clients operating in natural catastrophe zones. Utilizing a parametric policy as a local ‘primary/first response’ layer may secure early cash flow to alleviate short term post loss financial pressure, while a conventional placement above that handles more complex challenges like business interruption loss calculations.
Insurers do not perform equally at the point of claim. While past experience is no guarantee of future performance, it does provide meaningful insight. If a parametric solution isn’t the right choice for you today, an evaluation of the claims performance of each prospective Insurer as a key part of the provider selection process is highly recommended. Your Aon Claims professional can help.
Average Claims Costs are Rising Amidst Inflation and Supply Chain Complexity
The world continues to face social, economic and political challenges in what seems an ever-increasing scale of magnitude. The conflict in Ukraine, rising tensions surrounding China, and ongoing natural catastrophes are just some of the factors that cast shadows on the future.
Claims inflation is reported to have risen in excess of 8% over the last year, driven by myriad factors including core YoY inflation, supply chain challenges, and social inflation characterized by increasing litigation, more plaintiff-friendly legal decisions and larger compensatory jury awards (especially in US Courts), with some notable recent awards exceeding total limits available. In the Property space, insurers’ ability to remediate losses quickly is being hampered by the reduced availability and increased cost of goods and services throughout the supply chain. At the same time, claims adjustments are constrained as insurers focus on disclosed property values compared to post-loss values. Many insurers are looking hard at their policy language to ensure the claims benefits are aligned with policy wording and underwriting.
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