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The shifting sands of liability

As the liability landscape continues to shift, executives face new challenges at every turn

Will persisting supply chain weaknesses lead to reputational harm or damage stock valuations? How might new ESG reporting requirements impact D&O risk? Could Covid-19 drive significant change in employer liability?

Our latest Risk & Resilience Report demonstrates all too clearly how business leaders feel that risk is becoming ever more complex and has the potential to ‘leak’ across risk classes. As expectations of our industry rise, the value of closer, more responsive insurance partnerships that focus as much on risk management and mitigation as on traditional risk transfer will become increasingly evident.

Supply chain problems lead to rising boardroom threats
Supply chain risk is ranked high by business leaders in our research, and resilience levels are relatively low. But with many companies already reporting a rise in customer complaints, delays to product launches and the consequent loss of regular customers in 2021, it seems inevitable that valuations will suffer during 2022, and that shareholder actions against directors are likely to follow, perhaps pushing the issue up the boardroom agenda as we look further ahead.

Traditional supply chain insurances might include contingent business interruption covers – such as lost income or extra expenses – but the real value of insurance is likely to come from more than traditional risk transfer policies. While the insurance industry works on its response, many client companies are combining multiple strategies to build supply chain and business interruption (BI) resilience – increasing the inventory of critical products and components while simultaneously diversifying the supplier base and bringing some elements onshore.

ESG creates D&O risk
Rising stakeholder expectations around ESG and new reporting standards are another area of complex risk that is reshaping corporate strategy and shaping relations with investors and shareholders. Each passing month sees a growing body of legislation and regulation in both developed and emerging economies, the aim of which is to give teeth to the broader objectives of ESG.

The liability implications of ‘greenwashing’ are something that both insureds and insurers will have to be more aware of going forward. Many jurisdictions have already published plans to tackle greenwashing around ESG, and the UK government announced that, from 6 April, the largest UK-registered companies and financial institutions will have to disclose climate-related financial information on a mandatory basis.

Covid is supercharging employment risk

Our research reveals that employer risk is ranked moderately low by business leaders on both sides of the Atlantic, but in many ways the challenges could be just beginning.

In a world where there are no longer any reliable ‘right’ answers, we may expect to see an increase in Covid-19 claims, including challenges over vaccine mandates in the workplace, wrongful termination, discrimination claims and even harassment. There can be little doubt that uncertainty is a key feature of the current employee risk landscape and that it will be some time before the long-term implications of changing work patterns and the response of both employers and their employees to them are fully clear or understood.

Risks are complex and ‘leaky’
Above all, our Risk & Resilience research tells us that business risks are predicted to feature large on business leaders’ radar this year and that 2022 may be the year in which supply chain, D&O, reputation and employment liability concerns ‘leak’ across insurance classes, creating ever more complex, integrated risks with no obvious or traditional insurance solution.

Against this backdrop, it is inevitable that the risk of perceived corporate mismanagement will remain elevated, putting corporate reputations very firmly under the spotlight and raising expectations of insurers to step in and help mitigate reputational risk.

These difficult market conditions will test the resolve of some market players, making it more important than ever for insureds to pick a long-term insurance partner with the expertise and insight to help them navigate the complex business risk landscape.

Meanwhile, insurers must also beware. If resilience fatigue starts to set in across industry sectors, it is possible that business leaders may look at their insurance cover and demand greater granularity and transparency on wordings. This will present an increasing challenge for the industry going forward.

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