Lord Levene hosted a debate in New York this week about the changing nature of liability risk and its potential impact on global business.
With 140 business leaders attending, including senior insurance executives, the event brought together experts to examine how companies can best manage liability risk, including potential liabilities arising from the global financial crisis.
Lord Levene, said, “As the world’s leading specialist insurance market, understanding risk lies at the heart of what we do at Lloyd’s. But as the financial crisis begins to bite, the results of our research with global business leaders suggest that we need to wake up to some new challenges.”
Joe Perella, Chairman and CEO of Perella Weinberg Partners, the private financial services firm, opened the conference with a unique insight into the causes and possible outcomes of the current financial crisis.
“It will take time for the tide to turn with regard to investor retrenchment and corporate risk aversion,” he said, “but it’s my hope and belief that the financial service industry will emerge with a stronger global financial system that’s structurally more suited to managing the risks inherent in today’s market.”
Perella pointed out that in an age of global financial integration new global regulatory regimes must be devised to reflect the interconnectedness of financial institutions.
Report: Transatlantic Trends
Lloyd’s launched a new report at the event: Litigation and Business: Transatlantic Trends.
It outlines a number of key trends in litigation that could have a significant impact on global businesses, including third party litigation funding, class action lawsuits and forum shopping.
Produced in conjunction with RAND Europe, it highlights a number of ways that boards can strengthen their risk management strategies to manage these risks.
“Current economic conditions only bring a greater likelihood of claims,” said Levene, “and recent analysis suggests that companies are poised for an increase in action as a result. A review of these issues is therefore very timely.”
According to the report, most business leaders say that the burden and threat of litigation is becoming problematic. Specifically, shareholder activism is on the rise, while companies also face action by special interest groups as well as regulatory authorities.
Litigation spreads
As companies continue to develop their global presence, the geographical scope of litigation liabilities is expanding as well.
“You hear a lot about globalisation—it’s true when it comes to Transatlantic litigation,” said Ken Feinberg, an attorney and the Managing Partner and founder of The Feinberg Group, LLP. “The Atlantic Ocean is now a pond.
Everything that originates in the United States quickly becomes news in London and Europe and Asia.” He said there has been a proliferation of plaintiff law firms in Europe as well as an increasing trend towards third party investment in major complex litigation.
Feinberg suggested that businesses now need to consider what the international litigation environment means for their business strategy.
He said, “It seems to me that this is a very timely opportunity for businesses in America and throughout the world to factor into their strategy what domestic litigation, from California to Boston, might mean for company activity abroad.”
Managing liability
The conference, chaired by Michael McKee, an economics and political editor for Bloomberg News, included a panel discussion about the trends and issues in managing liability risks with top figures in the US insurance industry, and also investigated a range of other risks for businesses including emerging markets, environmental and corporate governance risks.
A 2008 survey of 180 board-level executives by Lloyd’s and the Economist Intelligence Unit released earlier this year found there’s growing concern among business leaders about the liability fallout from the current downturn in financial markets.
The report, Directors in the Dock—is business facing a liability crisis?, also found that two in three business leaders believe that the scale of liability claims arising from the credit crunch will exceed those arising from the dotcom crash earlier this decade.
The Lloyd’s 360 risk project aims to generate debate about today’s key risk issues and how best to manage them.
