Business interruption insurance losses are being amplified by concentrated production, limited manufacturing capacity and rising recovery costs, according to Allianz Commercial, with average claims now significantly exceeding associated property damage losses.
The insurer’s global claims analysis shows that the average 100% value of a business interruption claim, including other insurers’ shares of the same risk, exceeds €850,000. That is approximately 70% higher than the corresponding average property damage claim of nearly €500,000.
- Average business interruption claims exceed €850,000, approximately 70% higher than the corresponding average property damage claim of nearly €500,000.
- Concentrated manufacturing, specialist equipment shortages and strong AI-related demand are increasing losses in semiconductors, pharmaceuticals, aerospace and other industries.
- Geopolitical conflicts, tariffs, inflation and lean supply chains are raising recovery costs and extending business interruption periods.
A major source of exposure is companies’ dependence on a limited number of specialist production facilities, suppliers and geographic locations for essential materials, components and services.
Business interruption insurance claims analysis
Industries particularly vulnerable to disruption include semiconductors, pharmaceuticals, defense manufacturing, aerospace and automotive components.
A fire, cyberattack or extreme weather event affecting one critical supplier can interrupt production across multiple companies and countries.
The artificial intelligence boom has increased these exposures in sectors facing strong demand and constrained capacity. Semiconductor manufacturers, for example, may struggle to replace lost production because alternative facilities are already operating near capacity.
Some of the largest business interruption losses arise in industries where production processes are highly specialized and alternative capacity is difficult to secure. Where order books are full and mitigation options limited, even relatively short disruptions can quickly translate into significant business interruption losses.
Sarah Versavaud, Business Interruption Global Practice Group Leader at Allianz Commercial
Recovery costs often depend less on repairing damaged buildings than on replacing specialist equipment, restoring production capacity, meeting regulatory requirements and requalifying manufacturing processes.
These requirements can substantially extend downtime and increase insured losses beyond the cost of physical damage.
Supply chain concentration increases business interruption exposure
Companies have invested in supply chain resilience following the Covid-19 pandemic and major disruptions such as the 2021 Suez Canal blockage involving the container ship Ever Given. Yet efforts to improve resilience have not always kept pace with changes in operational and geopolitical risks.
Alberto Barani, Business Interruption Group Leader in Risk Consulting at Allianz Commercial, said companies had previously prioritized efficiency by reducing inventories, streamlining production and limiting supplier numbers.
External factors have exacerbated what was already happening. The trend was to minimize stock, streamline production and reduce the number of suppliers to maximize return on capital. On top of this we now have tariffs, regional conflicts, cyber-attacks and heightened inflation.
Alberto Barani, Business Interruption Group Leader in Risk Consulting at Allianz Commercial
Just-in-time supply chains provide fewer reserves when production or transportation is interrupted. Greater automation can also concentrate operational risk in individual systems.
“The focus on just-in-time and lean supply chains has reduced buffers and resilience, so when you have a disruption, it’s immediate and it’s expensive. High efficiency through automation can also lead to concentration of risk,” Barani explained.
Automated warehouses are a particular concern because failure of a central control system can prevent companies from accessing or moving inventory, even when the goods themselves remain undamaged.
Geopolitical tensions and inflation raise recovery costs
The war in Ukraine and conflict in the Middle East continue to affect energy markets, transportation costs, supply chains and wider economic conditions, with consequences varying across industries and regions.
Inflation following the pandemic, combined with equipment shortages and delivery delays, has already contributed to higher business interruption claims.
“Inflation affects business interruption losses on several levels. Beyond increasing repair, recovery and mitigation costs, it is also reflected in higher insured values, increasing overall business interruption exposures. Conversely, where values are not reviewed regularly, inflation may contribute to underinsurance,” Versavaud said.
Measures intended to reduce downtime, including alternative sourcing, expedited transportation and temporary production arrangements, have also become more expensive.
Tariffs add further pressure, particularly in metals, manufacturing, machinery and technology, where businesses depend on imported materials and equipment.
Allianz Commercial’s analysis indicates that the financial severity of business interruption increasingly depends on how quickly companies can restore critical operations and secure replacement capacity. In highly specialized industries, limited alternatives and higher mitigation expenses can turn relatively short disruptions into substantial insurance claims.
The core strengths of business interruption claims management remain as relevant as ever: understanding how the business operates, its critical dependencies, its market environment and the practical challenges it faces following a loss.
