‘Liability’ crisis may be looming, expected to raise D&O premiums

If businesses do not start preparing now for expanding litigation exposures, they could face a future liability crisis, Lloyd’s warns.
Dealing with liability risk consumes roughly 13% of a board’s time, and this is expected to increase further over the next three years, according to a Lloyd’s report, ‘Directors in the Dock: Is Business Facing a Liability Crisis?’
Lloyd’s surveyed 183 board level executives. Thirty-nine per cent of them expect the increasing risk of litigation to increase the cost of their products and services.
The same percentage of respondents believed the risk of getting sued threatened to stifle corporate risk-taking over the next three years.
“Most significantly of all, about one third of businesses have become more risk averse and less likely to invest in new business opportunities as a direct result of concerns about litigation,” the report reads.
The study found that while most boards surveyed are taking positive steps to manage corporate risk more effectively, 43% have not yet adopted formal policies and procedures to manage liability risk.
More than 50% of all business leaders believe a US-style compensation culture is spreading, Lloyd’s reported.
Two in three business leaders believe the scale of liability claims predicted to arise from advances in technology, environmental damage and corporate governance will exceed that arising out of the Dotcom crash.
“With competing business priorities seen as the Number 1 obstacle to effective management of liability risk, many companies would benefit from integrating this activity within a clear overall enterprise risk management framework,” the report finds. “This not only has the potential to deliver a more efficient risk management strategy for the business, but also to align risk management more closely with other business goals.”