Corporates face mounting liability from multiple risks, finds Geneva Association

Litigation practices have emerged as the leading driver of future liability risk facing corporates as concerns rise about US social inflation and its potential to spread, finds a survey by The Geneva Association. The insurer think tank warns that a more plaintiff-friendly civil litigation environment, which has been created by more aggressive tactics from the plaintiffs’ bar and third-party litigation funding, will drive liability claims against corporates. In a wider report on commercial liability trends, 40% of global insurance liability experts name legal and litigation practices as the leading influence on liability risk, followed by changes in technology opening up new avenues for claims. Darren Pain, director of cyber and evolving liability at The Geneva Association and author of its Forewarned is Forearmed report, says ongoing digitalisation will “reconfigure” the liability risk landscape. He says greater levels of interconnectivity will increases corporates’ exposure to intangible risks from cybersecurity to intellectual property breaches. At the same time, potential technologies such as the metaverse could “develop rapidly and have far-reaching liability implications”, continues Pain. More than 90% of survey respondents report that digitalisation will have a significant effect on liability risk. Corporates also face increasing climate change litigation, Pain says. “Inadequate disclosure of climate-related information by corporates likely poses the most immediate threat,” he says. Climate change litigation has expanded to new types of plaintiffs, alongside claimants from different industries and jurisdictions outside the US, the report explains. More than 90% of survey respondents cite failure to prevent and mitigate climate change as a key liability risk, with around 90% citing greenwashing as a significant issue. Corporate social responsibility and governance pressures are also creating potential ESG-related liability threats, the report warns. Triggers for claims include lack of transparency around DEI standards and breaches of directors’ fiduciary duty to manage companies responsibly. “Firms that fail to meet the expected standards open themselves up to the risk of litigation and/or regulatory action,” the report says. Pain names growing evidence on the adverse effects of industrial contaminants and forever chemicals as the fifth factor likely to influence commercial liability risk. “Industrial pollutants like per- and polyfluoroalkyl substances and microplastics may have a significant influence on commercial liabilities over the medium term,” he says. The survey reveals that almost 50% of respondents from the liability insurance industry named industrial pollutants as a significant influence on the medium-term commercial liability outlook. Based on its survey of liability insurers, The Geneva Association says insurers and reinsurers recognise the need to adapt their products to keep pace with the evolving threat landscape facing customers. “Refining policy language, adjusting policy limits and repricing will inevitably play a role, as will investing in improved exposure modelling, partnerships to gather relevant data/intelligence and share risks, and product innovation,” the report says. “Well-designed terms and conditions in insurance contracts incentivise policyholders to take steps to reduce the risk of harm or injuries. For instance, increasing premiums, reducing limits of liability, restricting coverage terms or refusing to underwrite certain risks altogether, ensure policyholders face some of the potential liability costs, which may encourage them to take preventive actions,” it adds. The report stresses that liability insurance has to innovate to remain relevant to buyers. “These approaches will help ensure liability insurance maintains its socially essential function: ensuring victims are adequately compensated while also incentivising corporate insurance customers to reduce the risk of harm to themselves and others,” it says.

Corporates face mounting liability from multiple risks, finds Geneva Association

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