Erschienen in Ausgabe 11-2017Märkte & Vertrieb

Words of the week: 289. Accumulation

Von Keith PurvisVersicherungswirtschaft

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Accumulation in an insurance sense occurs in many different circumstances, depending on the line of business. In property insurance, it refers to the total number of risks that could be involved in a single loss event, caused by one or more insured perils. This could, for example, be an earthquake, tsunami, windstorm or conflagration. Such sudden and unexpected events can cause a degree of bodily injury and property damage that is catastrophic. Indeed, the reinsurance protection against such losses is called a catastrophe excess of loss (Cat XL). The so-called hours clause circumscribes such an event by limiting it to a defined number of hours, most commonly 72. Portfolios of life and accident business are also exposed to the accumulation risk.

Accumulations may also arise due to a lack of control. Marine cargo is notoriously difficult to track and several shipments of goods covered by one insurer may accumulate in one warehouse at one location. Their destruction by fire or explosion, could cause a loss that exceeds the limits of the cargo policy. To cope with this contingency a cargo accumulation clause allows the sum insured to be increased if this happens.

The events just mentioned are sudden, sometimes even dramatic, and may well hit the headlines. However, there are lines of business in which an accumulation of claims from the same cause builds up over time. This is less obvious to the public eye, but nevertheless just as problematic for the insurers involved. A case in point that has recently affected legal expenses insurers is the fallout from the manipulation of diesel car emissions. Purchasers of these vehicles, many of whom have legal protection policies, are now suing the manufacturers. This was a scarcely foreseeable accumulation, which is now fiendishly difficult to quantify.

If we extend the range of meaning of accumulation somewhat, we find it is a permanent feature of many lines of business. During recessions credit insurers experience far more claims than in normal times, as do life insurers with portfolios of income protection policies, as well as legal expenses insurers that cover those who sue their employers. Health insurers have to live with the possibility that a pandemia could occur at any time, and property and liability insurers with the risk that a single production error could trigger a multitude of claims. It is difficult to imagine an insurance portfolio in which the risks are such discrete items that one event could never…