Businesses must face up to liability challenge

Businesses could be facing a future liability crisis if they do not face up to growing litigation issues Lloyd's has warned.

In a new report 'Directors in the Dock - is business facing a liability crisis?’ [1] published by the insurance specialist, 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. "Litigation is a leveller of modern businesses. No matter what their size, location or industry, all businesses are facing increasing liability risks," said Lord Levene, chairman of Lloyd’s.

Product recalls are now a daily occurrence, rising by 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 [2] 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.

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.