Accumulation risk, where a single event triggers losses under multiple policies in one or more lines of insurance, is emerging in new and unforeseen ways in today’s interconnected world, says a post at Swiss Re Open Minds blog.
From Ruta Mikiskaite, casualty treaty underwriter, and Catriona Barker, claims expert UK&International Claims at Swiss Re:
“Accumulation scenarios have always been familiar in property insurance but for casualty lines of business, they have been perhaps less of an issue. However, large losses in recent years show how traditional physical perils should not be underestimated for their casualty clash potential.”
For example, Kilmore East-Kinglake bushfire, the most severe of a series of deadly wildfires in the Australian state of Victoria on Black Saturday, 7 February 2009, led to a settlement of A$500 million—the biggest class action settlement in Australian legal history.
Per Swiss Re’s post, the Royal Commission found that the fire was caused by poorly maintained power lines owned by power company SP AusNet and maintained by asset manager Utility Services Group. The Victoria State government was also held liable for its failure to provide sufficient prevention measures and inadequate warnings during the fires.
“With improved technology and scientific tools available to analyze and simulate scenarios following storms, fires and floods to predict their likely or alternative courses, any action by an individual, corporate body or government now attracts far greater scrutiny. As a result, there can be a greater readiness to sue for alleged nuisance or negligence leading to more casualty claims out of natural perils.”
The upshot: insurers need to look at their reinsurance programs to see how they would respond to liability clash events.