Global belt-tightening? Business is
loosening its belt to cover its ever-expanding liability
Identifying potential exposures is one way insurance brokers
can help clients anticipate and manage their risks. A new Sigma
report from Swiss Re on commercial liability highlights the
risk of growing liability exposures around the globe and the
threat they pose for businesses and the industry.
Liability insurance covers a host of risk exposures,
including environmental impairment and professional product and
employment practices liability as well as directors and
officers and workers comp. Liability exposures rank high on
risk managers’ list of concerns—and for good
reason: Liability claims are rising, as are potential
According to the Sigma report, in 2008, businesses around
the globe spent nearly $142 billion on liability insurance, or
about 25% of what they spent on all insurance. Commercial
liability insurance represents a little less than 9% of the
global non-life market premium volume, but it’s
The top 10 markets, including China, accounted for 91% of
the worldwide commercial liability market. The developed
markets account for 95% of global commercial liability
insurance. Considering its aggressive legal environment,
it’s no surprise that the United States’ share of
the market is more than half of the world liability market
In the Americas, Canada is the second largest liability
market with $4.9 billion in premiums. Its market has been
growing annually by an average of 15% since 2000. Latin
America’s share is about $1 billion with an annual growth
rate of about 14% over the last 10 years.
The U.K. is the second largest liability market in the world
with premiums of $11.7 billion. Employment-related accidents
and illnesses in the U.K. accounted for 30% of premiums. The
largest markets for liability insurance on the European
continent are Germany, France, Italy and Spain, which accounted
for a combined $26 billion in gross liability premiums.
In the Asia-Pacific region, Japan and Australia lead the
commercial liability market with premiums of $4.7 billion and
$3.8 billion, respectively. The liability market is catching
fire in emerging countries as well. Those markets generated $2
billion in 2008 and have grown at an average annual rate of 19%
The growth potential in China is significant. Although
market penetration is low, its commercial liability market has
grown annually at an average rate of 22% in the last decade.
Other emerging markets in the region averaged 10% growth during
the same period.
The Sigma report notes that the United States poses a
special challenge to corporations with U.S. exposures. Marsh
reported that corporations with significant North American
operations bought close to twice as much coverage as those
without risks in North America. They also paid about 60% more
for insurance. Data from RIMS show that larger U.S.
corporations spend 48% of premiums on liability insurance, or
about 2% of revenues.
In addition, companies that have experienced large losses
(greater than $5 million) often purchased limits about 3.5
times higher than those not incurring large losses. What was
once thought of as an American problem is a growing trend in
other parts of the world. In Europe, limits were nearly twice
as high for companies experiencing large losses.
As the report points out, the risk to the economy of
underestimating liability claims is substantial. Over the long
term, growth in commercial liability claims outpaces GDP growth
significantly. For example, between 1960 and 1980, the compound
annual growth rate for liability claims in the U.S. was 9.4%,
while the nominal GDP rate was 7.1%. In the U.K., liability
claims grew 10.8%, while GDP grew at 9.2% between 1970 and
There are a number of reasons for the growth of liability
claims, but the cost of healthcare is a key driver.
Interestingly, the report says growth in liability claims is
more closely related to expenditures in healthcare than to the
Consumer Price Index or wage inflation. In fact, healthcare
expenditures grew at roughly the same rate as liability