A research by Lloyd’s show that UK businesses could soon be faced with increased litigation challenges following the global credit crunch, which has created a future insurance liability crisis.
The report warns that the credit crunch crisis means that the risk of liability insurance for businesses is a real and expensive matter if they do not face up to growing litigation issues.
In a new report 'Directors in the Dock - is business facing a liability crisis?’ published by Lloyd’s in association with the Economist Intelligence Unit, businesses are urged to anticipate and prepare for future liability risks.
According to the study, directors are now concerned that businesses will soon be forced to spend more time dealing with litigation issues.
The study revealed that boards nationwide are affected by the global credit crunch crisis and increasingly feel challenged by growing litigation figures which are costly and time consuming.
It also shows that a growing number of business leaders are also concerned 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 further mentions future employer liability issues that boards should be preparing for in the wake of credit crunch; including product recalls which the report says has now become a daily occurrence, rising 50% in Europe in the last year.
But the study’s most worrying revelation pointed at the sharp rise in shareholder activism and the fact that operating environments for businesses are becoming ever more complex.
Existing legislation such as the Corporate Manslaughter Act is not helping any business with regard to insurance liability claims and only increased the risks even further. Lloyd’s study argues that this has resulted in the repression of innovation and risk taking while increasing the price of products and services.
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.’
He added: '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.'
Lloyd’s research also found that over half of all business leaders believe that a US-style compensation culture is spreading at an alarming rate in both Europe and Asia. It also suggested that two thirds of European business leaders expect to spend more time on litigation-related issues over the next three years while 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.
Other findings show that boards most fear future liability issues arising from advances in technology; environmental damage; and corporate governance. The study points out that there is no escaping from the issues surrounding liability claims and that business will have to accept the change that has been brought by credit crunch.
It also found that two in three business leaders believe that the scale of liability claims arising from the credit crunch will exceed those resulting from the Dotcom crash. The report which thoroughly examined the rising litigation culture in the UK and US also included a global survey of over 180 board-level executives, supplemented by in-depth interviews.
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