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Commercial liability growth poses new challenges: Swiss Re

Growth in the commercial insurance liability sector poses crucial underwriting challenges for insurers and government, who must work together to keep liability risks insurable, according to analysts at Swiss Re.

As increasing litigation pushes commercial liability premiums worldwide up–they rose to $142 billion (USD) in 2008— insurers must try to get ahead of quickly evolving social and technological risks through better risk management, the analysts state in the reinsurer’s latest Sigma report.

“Risk assessment and mitigation play an important role in reducing the overall cost of risk and keeping certain risks insurable,” they note in Commercial Insurance: A Challenge for Businesses and their Insurers, released December 16. “Insurers must better understand and monitor the drivers of liability claims costs and then reflect this in the actuarial models.” They also urge insurers to scrutinize wording and policy language to manage their exposure to quickly-changing liability risks.

The report points to emerging risks and the long-tail nature of those risks as key issues affecting pricing. Insurers already monitor issues relating to food safety, environmental pollution and employment practices, and newer risks, like the changing nature of compensation, are already on their radar.

“Fortunately, none of these emerging risks has evolved into the next asbestos — yet,” says Roman Lechner, the report’s co-author. “The problem is that emerging risks cannot be assessed with traditional actuarial methods. They can only be determined after claims have accumulated following precedence verdicts.“

Governments also have a role in the future of liability insurance through tort reform that limits frequent changes to liability rules, eliminates procedures that contribute to unpredictable outcomes or delays in claims resolution, and avoids retroactive liability. “Both from the companies and the insurer’s point of view, it is important that the cost of liability regimes remains affordable and the legal and jurisdictional framework remains predictable,” the authors state.