General liability’s ‘bowl of spaghetti’ risk environment
General liability’s ‘bowl of spaghetti’ risk environment | Insurance Business Australia
Cyber
General liability’s ‘bowl of spaghetti’ risk environment
Billion-dollar jury awards, toxic chemicals, cyber security, jurisdiction issues, climate change and more
Cyber
By
Bennett Richardson
It might be a case of ‘just when you thought it was safe to go back in the water’ for general liability risks in Australia, according to Andrew Cochrane, liability underwriting manager for Northern Region at HDI Global SE, Australia.
The market has improved on the back of increased business activity post-COVID to the extent that players who departed amid weaker returns are now fishing for customers again.
“Some capacity that may have left the market in the last four or five years have now come back in. The London markets took a serious backstep for a few years due to poor performance, but they have had positive results for the first half of 2023, so we expect some major capacity to return,” says Cochrane.
A growing number of claims, especially those related to contractor and labour hire injury, have also helped push premium rates to higher levels.
But Cochrane doesn’t see the outlook for the year ahead as all plain sailing for insurers – indeed, there could be a number of dangers lurking under the surface, especially for large companies doing business internationally.
While the last case appears to be more a nuclear deterrence gesture to warn bar owners to serve drinks responsibly, the possibility of an Australian company finding themselves with a similar size bill inviting Mutually Assured Destruction for insurer and client is not nil.
Cochrane says the typical auto liability policy that gets scheduled in an Australian master policy normally only covers a nominal amount, perhaps US$5m. So if there were to be a US$50m claim, HDI ends up footing the bill for the remainder.
“Basically, we don’t ever charge for it – so there’s a bit of an issue. Certainly, my peers in the market are raising this for every account which has got US auto [exposure].”
Not surprisingly, the practice is unsustainable.
“It’s always been chucked in for free, but I think that’s going to change a lot over the next 6-12 months.”
“The new asbestos”
With its global head office in Germany, Cochrane also has his ear close to the ground when it comes to emerging risks coming out of the Continent.
He’s noticed that exclusions for losses related to PFAS (per- and polyfluoroalkyl substances) have become near mandatory in Europe and the US but are still on the horizon for many insurers in Australia.
Sometimes referred to as “the new asbestos”, these toxic chemicals are widely used in many consumer and industrial products and are linked to numerous serious health conditions. Due to their broad use and damaging effects, PFAS pose a significant risk and liability concern for the companies associated with them and the insurance industry.
One estimate for just the litigation costs to chemical companies involved is at least US$2bn, not including potential liability for companies who used PFAS in the manufacturing of their products or companies that sold or used products made with PFAS.
“It seems to be every insurance head office’s favourite topic at the moment… we’re getting a lot of noise from Germany that we need to have exclusions. I see it being pretty much mandatory in Australia, certainly the next year or two,” says Cochrane.
“Insurance market practices can vary from one country to another, [so companies] have a need for local policies to align with local norms,” says Cochrane.
For example, France has some very specific country requirements that are not satisfied by a European Economic Area Freedom of Services (FOS) policy.
“FOS policy versus local policies can vary depending on the specific regulatory environments of each country. Some countries may require local policies to provide coverage for risks that are unique to a particular jurisdiction and not adequately addressed by Australian master policy, while others may follow the FOS arrangements where foreign insurance provides coverage across multiple EU countries.”
The sheer scale of HDI as the part of the Talanx Group with offices in 175 countries means that it can issue local policies practically anywhere in Europe (or elsewhere for that matter). By comparison, an insurer with its European base office in Spain only would be restricted to issuing a policy for other countries in Europe from its Spanish office – which might not cater to local regulations in Slovenia, for example.
Other hidden shoals
The post-pandemic business world is shaping up to have significantly more risks and different practices to pre-2020 norms than many first thought when they first emerged, blinking into the light, from lockdowns not so long ago.
In typical understatement, Cochrane calls these emerging risks “a bit of a bowl of spaghetti” and a complex one at that, which requires insurers like HDI to be more proactive in piloting customers and brokers through safe passage while helping them understand the need for better coverage – not an easy task.
“Try summarizing all that into ten words,” he laughs.
As an industrial lines insurer, HDI Global SE (HDI) pioneers value-driven insurance solutions globally to meet the needs of corporate and mid-market customers. The HDI Global network spans 175 countries, offering its multinational customers compliant coverage worldwide. HDI Global SE is a company in the Industrial Lines Division of the Talanx Group, a leading insurer for several decades. Standard & Poor’s has given the Talanx Primary Group a financial strength rating of A+/stable (strong). Talanx AG is listed on the Frankfurt Stock Exchange in the MDAX.
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