Businesses Must Face Up To Liability Challenge, Warns Lloyd’s

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May, 2008 – Businesses could be facing a future liability crisis if they do not face up to growing litigation issues, Lloyd’s warned today.

In a new report ‘Directors in the Dock – is business facing a liability crisis?’ published by the world’s leading specialist insurance market, businesses are urged to anticipate and prepare for future liability risks.

Lloyd’s research has shown that boards everywhere are feeling increasingly challenged by litigation and are spending more time and money addressing these issues. Product recalls are now a daily occurrence, rising 50% in Europe in the last year. Shareholder activism is on the rise, operating environments are becoming ever more complex and new legislation such as the Corporate Manslaughter Act is increasing risks even further. As a result the price of products and services is increasing and innovation and risk taking is being stifled.

The report reveals that there is a growing concern among business leaders about the rise of a US style compensation culture in Europe and Asia and the liability fallout from the current instability in the financial markets. It also highlights the future liability issues that boards should be preparing for.

Key findings include:

  • two thirds of European business leaders expect to spend more time on litigation-related issues over the next three years;
  • 39% expect the growing risk of litigation to increase the cost of their products and services and stifle risk taking over the next three years ;
  • over half of all business leaders believe that a US-style compensation culture is spreading in Europe and Asia;
  • 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; and
  • boards most fear future liability issues arising from advances in technology; environmental damage; and corporate governance.

Lord Levene, Chairman of Lloyd’s said:

“Litigation is a leveller of modern businesses. No matter what their size, location or industry, all businesses are facing increasing liability risks. Product recalls are now a daily occurrence, rising 50% in Europe alone in the last year. Shareholder activism is on the rise and a complex operating environment and new legislation serves to increase risks further.

“An increase in litigation and the fear of potential liability issues is impacting customers through a rise in the cost of products and services and also stifling risk taking amongst boards who are missing out on new opportunities.

“At Lloyd’s we know that taking risks is part and parcel of doing business but our research shows that there are clear benefits to thinking differently about the liabilities they face and developing the right culture and structure to manage them more effectively.”

The report launches the third series of Lloyd’s 360 risk project, which aims to generate debate about today’s key risk issues and how best to manage them. The report was written in conjunction with the Economist Intelligence Unit which carried out an extensive programme of research including a global survey of over 180 board-level executives, supplemented by in-depth interviews, to provide a broad business perspective on the issue of liability risk management.

Issues raised in the report will be debated at a live session on Tuesday, 20 May at Lloyd’s. The panel session, hosted by Lord Levene and chaired by Clive Anderson, will explore key issues surrounding corporate liability and its impact on the business world. Joining him will be business leaders and risk experts including:

  • Lord Falconer, former Lord Chancellor and Minister for Justice;
  • Gerald Forlin, a leading barrister and manslaughter law expert who has acted in many high-profile cases including the Hatfield rail crash;
  • The Rt Hon The Lord Hunt of Wirral a Member of the House of Lords and chairman of the financial services division of Beachcroft LLP; and
  • Amanda Stevens, President of the Association of Personal Injury Lawyers (APIL) and partner and head of the personal injury group at Charles Russell solicitors LLP.

About Lloyd’s

Lloyd’s is the world’s leading specialist insurance market with a capacity to accept insurance premiums of more than £13.7 billion in 2005. It occupies sixth place in terms of global reinsurance premium income, and is the second largest surplus lines insurer in the US. In 2005, 62 syndicates are underwriting insurance at Lloyd’s, covering all classes of business from more than 200 countries and territories worldwide. More about Lloyds at Lloyd’s is regulated by the Financial Services Authority.