Businesses could be facing a future liability crisis if they do not face up to growing litigation issues Lloyd's warned today. A new report, 'Directors in the Dock - is business facing a liability crisis?’, published in conjunction with the Economist Intelligence Unit reveals that the world’s chief executives are most worried about the risks associated with technology, such as data security and nanotechnology, environmental liabilities and fears about the impact of climate change, and liabilities arising from poor corporate governance.
It also reveals that 50% of global business leaders rely on insurers as a source of information about new and emerging liability risks, so what can insurers do to help businesses to tackle the issue head on?
Insurers within the Lloyd’s market and elsewhere provide a wide range of policies to cover businesses and their directors against specific liabilities. In Lloyd’s case, examples of policies include: general liability for construction projects; directors’ and officers’ and errors and omissions insurance for professionals such as lawyers; medical malpractice for doctors; specialist liability for financial institutions; and employment practices liability.
Only last month Lloyd’s insurer Kiln joined up with broker Lockton in the fight against digital risk. Their product, Business Resilience Insurance, protects against loss of income as a result of serious data breaches and direct losses from a disruption to an outsourcing and off-shoring agreement.
Dan Trueman, Special Risks Underwriter at Kiln, said the product had been driven by the demands of modern businesses.
“It goes beyond the old concept that clients just need cover for physical losses. It is a product which seeks to protect against non-physical damage losses which attack the revenue stream and often over which companies have little or no control.
“I think it is a first step in the industry’s efforts to mirror the way that business is moving and the new risks which come with a lengthening supply chain when it comes to core systems.”
In addition, the insurance industry is well placed to work with clients and help monitoring and anticipate emerging risks and to improve risk management processes and reduce liability exposures.
Some major insurers employ futurologists to look at what might happen in the next decade.
Lloyd’s insurer Chaucer has its own risk management department that supports and assists business on a day to day basis and warns of changing risks – and liability risk is an important element of this work.
Gina Butterworth, Risk Officer and Director at Chaucer, explains: “When it comes to deciding where to place our resources, it depends on what area we are looking into. We manage risks on a number of different categories which could range from insurance related risks to credit or business related.
“Each specific risk is looked at by a single individual who would be supported by our committee, who will then pass the risk on to the board. This way we are embedding risk awareness within our most junior team members and escalating up to our senior members.”
Butterworth says her firm is currently looking at nanotechnology, climate change, political unrest, security and business interruption.
Tom Sheffield, technical director for Aon, says situations like the NHS losing patient data and HM Revenue & Customs mislaying over millions of records of child benefit claimants, as happened earlier this year, has provoked directors to think about the next big risks they may face – and potential liability issues are an important consideration.
He explains: “On top of the direct loss from technology abuses, there are risks to the management of companies relating to how well they protect against the attacks. We’re warning directors that they could find themselves being sued by employees or shareholders for not taking appropriate measures to prevent hacking, for example, or failing to provide back up for lost data.
“This is adding another layer of risk to directors who need to take action to protect the assets of their business against cyber crime or else face being sued.”
On the issue of cyber crime Aon is working with firms to ensure understanding of often complex policies.
“Cyber risks are pervasive. Among the measures we are taking to respond to these changing exposures, is analysing insurance policy language to maximise the potential coverage when a cyber risk materialises.”
With two thirds of boards in Europe and North America expecting the amount of time they spend on liability issues to increase over the next three years, it is clear that the insurance industry and business will need to work more closely together to ensure the emerging risks are met head on. 