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Companies face rising liability losses

A defective product is recalled around the world. Human error results in a major shipping incident. Credit card data is stolen in a cyber-attack. A dam collapses causing significant damage to the environment: Modern corporate liability exposures can arise from a growing number of sources and have the potential to result in larger and more complex losses for businesses than ever before, warns Allianz Global Corporate & Specialty (AGCS) in a new report   Global Claims Review: Liability in Focus.

The report identifies defective product or work, crash and human error incidents as the largest causes of liability loss for businesses, based on analysis of insurance claims. 
While ‘everyday’ liability claims like slips and falls or workplace incidents have been reducing due to more stringent safety regulations and better risk management, the report says the potential for more expensive liability losses around the world is increasing, particularly in relation to global product recalls, corporate liability, cyber and environmental incidents. Additionally, new corporate liability exposures will arise from disruptive technologies and the more complex business models of the growing ‘sharing economy’.



“Liability losses are and can range from minor and mundane incidents to major disasters, always causing third party damage or injury,” says Alexander Mack, AGCS Board Member and Chief Claims Officer. “The risk landscape for businesses is constantly shifting with liability risks on the rise globally. New technologies such as the internet of things, autonomous mobility or 3D printing will create fundamentally new liability scenarios for companies in almost every sector.” 



The AGCS Global Claims Review analyzes over 100,000 corporate liability insurance claims from more than 100 countries, with a total value of €8.85bn (US$9.3bn), paid by AGCS, and other insurers, between 2011 and 2016. Over 80% of losses arise from ten causes. 

Top 10 causes of liability loss by total value of claims 


  1. Defective product/work
  2. Collision/crash
  3. Human error 

  4. Accidental nature/damage
  5. Slips/falls/falling objects
  6. Water/fire/smoke damage
  7. Environmental damage 

  8. Natural hazards
  9. Vandalism/terrorism 

  10. Property damage 



Top causes of loss and claims trends


Impact of a defective product or work is the largest cause of loss, accounting for almost a quarter of the value of all claims (23%). The average loss costs businesses in excess of €260,000 with the cost of product recalls being a major driver. “The number of recalls has been steadily rising with increased focus on product and workplace safety, as well as more proactive regulation,” says Larry Crotser, Head of AGCS Chief Claims Office, North America.



Significant improvements in automotive and aviation safety may have reduced the number of collisions and crashes in recent years but these are still a major driver of liability losses, accounting for over a fifth of the value of all claims (22%), as well as generating the most claims. Human error (19%) is the third top cause of loss, driven by incidents which result in major losses, such as aviation and shipping events or employee injury.



Human error is a leading cause of claims in Africa 


Africa’s leading cause of liability claims by value is human error at 77%. Defective product/work accounts for 10% of liability claims in value while natural hazards are at 4%.  In South Africa, defective work/product leads the way at 37% in terms of top causes of liability loss by value followed by water/fire/smoke damage (26%) and property damage (15%). 

“Accidents happen and they are sometimes very difficult to foresee or prevent.

This is what insurance is for. However where a process or procedure can be engineered to ensure that that businesses carry out tasks with due care, foreseeable losses could be curbed. Companies have to be aware of the potential losses before they can mitigate them, so we share loss information and potential loss scenarios with our clients to enhance risk management methods,” says Storm Canham AGCS Africa Liability Team Leader.

 



Larger losses more commonplace


According to the report losses in excess of $1bn are becoming more commonplace and are no longer confined to the US, and Europe, as regulators become tougher, supply chains more complex and US-style litigation and compensation awareness spread around the globe. 

The US continues to be the world’s largest liability market generating both the highest number of claims, and many of the largest claims according to value.

“However, we do see a trend towards greater liability claims outside the US with rising awareness of consumer rights and compensation in Asia and Europe,” says Peter Oenning, Global Head of Liability Claims, AGCS. While class actions by consumers and investors remain largely a US affair, a growing number of countries now also allow for collective actions.

 

Conversely, foreign companies are increasingly being sued in the US. 

Insurers are also seeing a significant increase in large environmental liability loss activity, in the mining and construction sectors, and in Latin America and Asia. Analysis shows the average environmental damage incident costs businesses in excess of €2.3m, although costs will be significantly multiplied in major disasters.

 



Technology to drive big shift in liability losses


In future, digitalization and growing use of new technologies are likely to lead to a further shift in the liability risk landscape. Overall, the frequency of claims is expected to decline as trends such as autonomous driving improve road safety. However, technology will also bring new liability threats such as increasing cyber, product liability and recall risk.

 

Automation is likely to lead to increased product liability risk for machinery and component manufacturers and software providers, for example. New data protection laws around misuse or breaches of data will increase cyber liability for companies, potentially resulting in heavy fines and penalties, particularly in Europe from 2018, but also elsewhere. 

The growing “sharing economy” also raises new questions.

 

“Just imagine, a road traffic accident featuring an autonomous car share vehicle could involve the vehicle manufacturer, software provider and the fleet operator, as well as third parties involved in the accident. This would make liability harder to apportion and claims more complex to settle,” explains Oenning. Such a future car accident scenario will require claims handlers to understand sensors and algorithms to determine the cause of an accident. With the handling of liability claims becoming more complex and technical, investing in claims expertise and knowledge is increasingly important.

 



And finally…unusual liability claims

Liability losses also incorporate more unusual events. Almost 2% of claims analysed involve animals. Deer are the most dangerous due to being involved in collisions with vehicles in the US in particular. Bedbugs are an increasing bugbear for insurers, with the number of claims resulting from infestations and bites in hotels having increased over the past five years.

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Dark days as Aviation industry collapses

22nd November 2020
Air Botswana

As the Aviation industry takes a COVID-19 pummeling, for Africa the numbers are staggering, Chief Executive Officer of the International Air Transport Association (IATA), Alexandre de Juniac has observed.

Speaking recently at the African Airlines Association (AFRAA) has been hosting an Annual General Assembly, de Juniac said traffic is down 89% and revenue loses are expected to reach $6 billion. And this figure is likely to be revised downwards in the next forecast to be released later this month. “But the impact is much broader. The consequences of the breakdown in connectivity are severe,” he surmised.

According to de Juniac, five million African livelihoods are at risk while aviation-supported GDP could fall by as much as $37 billion. That’s a 58% fall.

“We have a health crisis. And it is evolving into a jobs and economic disaster. Fixing it is beyond the scope of what the industry can do by itself.”

He said they need governments to act, “And act fast to prevent a calamity.”

“We are in the middle of the biggest crisis our industry has ever faced. As leaders of Africa’s aviation industry, you know that firsthand. Airline revenues have collapsed. Fleets are grounded. And you are taking extreme actions just to survive. We all support efforts to contain the COVID-19 pandemic.  It is our duty and we will prevail. But policymakers must know that this has come at a great cost to jobs, individual freedoms and entire economies,” he said.

de Juniac used the AFRA general assembly platform to amplify IATA’s call for governments to address two top priorities: “The first is unblocking committed financial relief. Airlines will go bust without it. Already four African carriers have ceased operations and two are in administration. Without financial relief, many others will follow.”

Over US$31 billion in financial support has been pledged by African governments, international finance bodies and other institutions, including the African Development Bank, the African Union and the International Monetary Fund.

Unfortunately de Juniac pointed out, in his words, “Pledges do not pay the bills. And little of this funding has materialized. And let me emphasize that, while we are calling for relief for aviation, this is an investment in the future of the continent. It will need financially viable airlines to support the economic recovery from COVID-19.”

The second priority, according to IATA is to safely re-open borders using testing and without quarantines.

“People have not lost their desire to travel. Border closures and travel restrictions make it effectively impossible. Forty-four countries in Africa have opened their borders to regional and international air travel. In 20 of these countries, passengers are still subject to a mandatory 14-day quarantine. Who would travel under such conditions?” de Juniac quizzed rhetorically.

He suggested that countries should adopt systematic testing before departure provides a safe alternative to quarantine and a solution to stop the economic and social devastation being caused by COVID-19.

He admitted that it’s a frightening time for everyone, not least the millions of people whose livelihoods depend on a functioning airline industry. Right now, de Juniac said there essentially is no airline industry. He cited the example that China’s largest airlines sound optimistic, but in a vague way. “They gave no hard data about current yields, loads, or forward bookings, discussing only developments in 2019. Boy, does that seem like ages ago.”

Aviation’s darkest days

The IATA CEO said these are the darkest days in aviation’s history. “But as leaders of this great industry I know that you will share with me continued confidence in the future.

Our customers want to fly. They desire the exploration that aviation enables. They need to do international business that aviation facilitates. And they long to reunite with family and loved ones.”

He said the industry will, no doubt, be changed by this crisis, but flying will return. “Airlines will be back in the skies. The resilience of our industry has been proven many times. We will rise again,” he said.

de Juniac said Aviation is a business of freedom. “For Africa that is the freedom to develop and thrive. And that is not something people on this continent will forget or lose their desire for.”

 

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Inflation increased to 2.2% in October 2020

22nd November 2020

Headline inflation increased from 1.8 percent in September to 2.2 percent in October 2020, but remained below the lower bound of the Bank’s medium-term objective range of 3 – 6 percent, and lower than the 2.4 percent in October 2019.

According to Statistics Botswana, the increase in inflation between September and October 2020 mainly reflects the upward adjustment in domestic fuel prices {Transport (from -3.9 to -2.5 percent)}, which is estimated to have increased inflation by approximately 0.29 percentage points.

“There was also a rise in the annual price increase for most categories of goods and services: Alcoholic Beverages and Tobacco (from 6.2 to 6.6 percent); Clothing and Footwear (from 2.5 to 2.7 percent); Communications (from 0.6 to 0.9 percent); Housing, Water, Electricity, Gas and Other Fuels (from 6.4 to 6.6 percent); Recreation and Culture (from 0 to 0.2 percent); Miscellaneous Goods and Services (from 0.7 to 0.9 percent); Food & Non-Alcoholic Beverages (from 4.2 to 4.3 percent); and Furnishing, Household Equipment and Routine Maintenance (from 2 to 2.1 percent). Inflation remained stable for: Education (4.7 percent); Restaurants and Hotels (3 percent); and Health (1.5 percent). Similarly, the 16 percent trimmed mean inflation and inflation excluding administered prices rose from 1.8 percent and 3.1 percent to 2.2 percent and 3.4 percent, respectively, in the same period.”

[Source: Bank of Botswana]

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BDC injects further P64 million into Kromberg & Schubert

22nd November 2020
BDC

Botswana Development Corporation (BDC) has to date pumped a total of P100 million into the expansion of Kromberg and Schubert, a car harnessing manufacturing company, operating from Gaborone Old Naledi.

At the official ground breaking ceremony of the company‘s new warehouse today, BDC Managing Director, Cross Kgosidiile revealed the wholly state owned investment corporation has pumped P64 million into the expansion which entailed building of the new warehouse.

Kgosidiile explained that this follows another expansion project which was successfully launched in 2017, in which BDC invested P36 million, bringing the total investment into Kromberg at P100 million. The MD also acknowledged Botswana Investment and Trade Centre (BITC) as a partner in the project and for having facilitated the acquisition of the land.

 

Giving a keynote address, Minister of Investment, Trade & Industry, Peggy Serame highlighted the importance of infrastructural development in growing the local manufacturing sector and transforming the economy of Botswana.

Serame underscored the value of strategic partnerships between Government and the private sector, noting that when the two work together and pull together in one direction results will be evident and jobs will be created.

“With the prevailing conditions of depressed economy occasioned by COVID-19 pandemic, government is reliant on entities like BDC to bring in revenue and acceleration of private sector development in line with its mandate and strategic plan. This plan is supported by the need to invest in growth sectors and accelerate the implementation of the Economic Diversification Drive,” Serame said.

Minister Serame noted that the partnership between BDC and Kromberg & Schubert begun in 2017 when the P36 million, 4100 square metres factory expansion for the company was launched.

 

She said the launch of the 7320 square meters factory expansion, to be built at the tune of P64 million signals the continuation of the good partnership between the two companies.

 

“I must commend BDC for their continuous efforts to build partnerships with the private sector geared towards contributing to economic development of this country.”

 

Minister Serame also added that BITC through its robust investor aftercare programme continues to provide value added and red carpet to Kromberg and Schubert under their One Stop Service Centre.

 

“In this regard BITC facilitated acquisition of land to enable this expansion. I therefore would like to commend BITC for their timely facilitation to make this expansion possible,” the minister said.

 

Kromberg & Schubert was incorporated in Botswana in 2009; The Company has grown to asset its position as a significant player in the regional automotive industry value chain.

 

The company is also a critical player in the economic development of Botswana, it currently employs 2100 Batswana across its operations. Kromberg exports on average P2.0 billion worth of goods annually, contributing significantly to foreign exchange.

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