Chapter 2: North America: Highlights, Claims Severity and Frequency

Claim Severity and Payment Trends

Aon North American clients were paid over $300 million on R&W claims in 2024, with a median payment of $5.5 million. Both figures are the largest Aon has seen to date in a single calendar year.

Key Takeaway: Aon clients are consistently receiving material payments on R&W policies.

The North American claims team has helped facilitate over 100 claim payments in the last three years, including 39 in 2024. Figure 1 illustrates the fluctuation of annual median and average claim payment size since 2019, with 2024 seeing an increase in both median and average payment size compared with 2023. The slim margin between average and median payment size in 2024, along with a historic median payment amount, confirms that material payments were consistently made to Aon clients last year.

Looking at the same data by year of policy inception (Figure 2), while median payment size has been relatively stable, average payment size has been increasing since 2020, with 2022 at the highest average payment size ($10 million). There isn’t enough payment data to provide insights on policy years 2023 and 2024 yet, but initial claim amounts for active claims on these policies suggest that this trend may continue.

Overall, 32% of paid claims were greater than 40% of the policy limit, and 14% of paid claims were greater than 80% of the policy limit (see Figure 3). Further, 8% of payments were policy limit payments, with a number of those claims resulting in a situation where a client suffered a loss well in excess of the policy limits. The significant percentage of claims being paid in excess of 40% of the policy limit reinforces the fact that insureds are likely buying adequate insurance, and the increase in losses that we have seen clients suffer in excess of policy limits would suggest that the purchase of more than 10% of enterprise value may be warranted in certain circumstances. This is further supported by Figure 5, which indicates that multiplied damages claims are becoming more frequent.

Figure 1
Aon Data: Average and Median Payment Size by Settlement Year

Figure 2
Aon Data: Average and Median Payment Size by Policy Inception Year

Figure 3
Aon Data: Paid Losses as a Percentage of Policy Limit

Most claim payments are the result of a negotiated resolution between the insurer and insured, with the overwhelming majority getting done without alternative dispute resolution. Aon data shows that less than 1% of claims are going to binding alternative dispute resolution. This is consistent with the data from Aon’s North America Insurer Survey (Insurer Survey), which showed that approximately 1% of R&W claims are going to arbitration or litigation. Having an experienced claims team that advocates for the insured is vital in the R&W market, and the comparisons between Aon data and the insurer data reinforce that conclusion. As you can see in Figure 4, Aon clients are receiving a higher percentage of claim payments above $5 million than the rest of the market. Overall, 19% of Aon claims have been paid, only 4% have been denied, 54% have settled within the retention or are dormant, and 23% are still active.

Looking ahead to predict how active claims may resolve, a key indicator is whether the alleged loss calculations are greater than dollar-for-dollar. Figure 5 shows that the percentage of these claims is increasing. For Aon policies that incepted between 2021 and 2024, 23% of claims alleged greater than dollar-for-dollar loss. In comparison, policy inception years 2016–2019 saw 14% of claims alleging loss that is greater than dollar-for-dollar. The exception is 2020, which has been an outlier year in terms of claim severity, and the lack of claims alleging greater than dollar-for-dollar loss is a key reason why.

While we expect the percentage to drop for policy years still on risk (a higher percentage of multiplied damages claims are submitted in the first 12 months of the policy period), the difference in loss calculations between 2016–2019 and 2021–2024 will likely remain significant. For example, policies incepted in 2021 had 20% of claims allege loss that is greater than dollar-for-dollar, which is more than any other year between 2016 and 2019. In the Insurer Survey, 41% of insurers similarly reported that claims alleging a multiple of damages are increasing and 0% reported a decrease.

Figure 4
Aon Data: Percentage of Total Claim Payouts by Amount Paid

Figure 5
Aon Data: Percentage of Claims Alleging Greater Than Dollar-for-Dollar Loss by Policy Inception Year

Claim Frequency

2021 was not the high claim frequency year insurers in North America were anticipating.

Key Takeaway: The downward trend in Aon claim frequency data bottomed out in 2020 at 15%, with more recent policy years trending upward toward historical levels.

Figure 6 compares Aon claim frequency data with results from this year’s Insurer Survey. The vertical black line in the center of the graph separates policy years that are still on risk for general representations from those that are now off-risk for general representations. 2021 is the most recent policy year to come off risk and one of particular interest. Industry experts have tracked 2021 closely due to its higher enterprise values and inflated multiples, as well as the fast-paced environment in which diligence and underwriting took place. Given these market conditions, the industry anticipated higher claim rates on 2021 policies, yet only 16.3% of Aon policies placed in 2021 were notified of a claim and insurers reported only 15% of their 2021 policies received one or more claim notices. This is the lowest frequency year reported to date in the Insurer Survey. While claim frequency is down, we cannot yet make conclusions on the severity of claims on 2021 policies, as 33% of claims are still active.

Figure 6
Aon Data: R&W Claim Frequency by Policy Inception Year

Figure 7 compares how claim frequency for each policy year has developed over time by measuring the time from the close of the transaction to the claim notice submission in six-month increments. 2023 is significantly outpacing claim frequency compared with years prior, with an 11% claim frequency just one year into the policy period. 2022 was similarly outpacing prior years during the first 12 months of the policy period; however, frequency of claims for that policy year tapered off significantly during year two.

Figure 7
Aon Data: R&W Claim Frequency from Deal Closing to Claim Notification by Policy Year

Outside the World of R&W

Spotlight on Judgment Preservation Insurance Claims

The media has reported on anticipated losses on single-case judgment preservation insurance policies, which insure against the risk of reversal of a judgment on appeal.

During the early years of litigation risk insurance growth (2015–2021), when most of the policies placed were M&A or transaction-adjacent, carrier loss ratios remained in the low single digits. Over the past several years, litigation risk insurance migrated away from these types of opportunities to single-case judgment preservation risks, driven in part by a post-pandemic slowdown in M&A.

Over the past couple of years, the industry has experienced certain negative developments on some of these single-case judgment preservation policies protecting significant judgment or award amounts. These reported anticipated losses have led to a reduction in carrier appetite, not only in judgment preservation insurance, but also in the broader contingent risk market with respect to opportunities that are not strictly single-case appellate risks. Appetite has reduced even more broadly through the transaction solutions business, where there is no relation whatsoever to these anticipated JPI losses. At the same time, more and more clients have become aware of the many ways in which contingent or litigation risk insurance can ringfence identifiable low-risk issues in a transaction, providing openings for insurers to participate in more measured opportunities. These include multiple trigger releases of escrow and other trapped capital, other types of “legal opinion” risks similar to tax opinion policies, and protection against successor liability claims.

Aon has observed that the carriers performing better within this class typically deploy across a diversified portfolio, thereby benefiting from the non-systemic nature of each risk transfer opportunity.