Financial lines: A changing threat environment
Growing regulatory scrutiny, emerging risks and a more connected world are leading to a greater frequency of professional liability, D&O, E&O and financial lines claims
Since the financial crisis, there has been a trend towards a tougher, less forgiving regulatory environment for corporates and their senior executives. In such a climate, they are more likely to be held to account for perceived misdemeanours than was the case in the past.
“A key factor has been the apparent failure of the banking industry to regulate itself. This has generated political and social pressure for organisations to adhere to regulations and submit to more stringent laws,” says Michael Reeves, EVP and head of global technical services at Crawford. “The risk landscape is changing.”
“Historically, D&O risks were always there, for instance, but the frequency wasn’t such as it is today – and increased regulatory scrutiny is a main driver,” he continues. “It’s also due to the requirement on major organisations to behave in a much more ethical fashion and therefore the responsibilities are greater.”
Against this backdrop, corporate misdeeds or mistakes are more likely to result in complex, long-running and expensive claims. “Anything that harms image or brand and causes financial loss will impact more people than just the shareholders in today’s world,” explains Reeves.
Directors and officers are also more exposed as a result. “Due to legislation changes so much more is expected from directors and officers – there’s much greater demand for compliance and in every field they’re asked to perform better,” says Rianne Baumann, Crawford director of liability, based in the Netherlands.
Emerging risk areas, including cyber liability, nanotechnology and 3D printing are also having an impact from a D&O, E&O and professional liability perspective.
“The Netherlands is one of the countries that will be the first in Europe to implement the new legislation on data breaches by the 1 January 2016,” says Baumann. “That means if a data breach takes place, you have to act within 24 hours. So if you look at that from a D&O perspective, the risk this poses to directors – if they didn’t pay enough attention to the threat of cyber – is significant.”
In a more interconnected, more regulated and scrutinized environment, the potential for an incident to impact multiple lines of business has also grown.
Ashley Madison is one example. The highly-publicised breach of the extramarital affairs website is expect to result in cyber and D&O claims among others.
In response to this complex environment, Crawford has launched a new Financial Lines Claims Service, which brings together multiple experts – including lawyers, forensic accountants and engineers – across multiple geographies.
“Geography is becoming less important and industry knowledge and product knowledge is becoming more important,” explains Reeves. “Particularly for larger organizations but also the insurance and reinsurance industry as a whole. They expect an organization like
Crawford to give them access to a team of people with skills and expertise in this area on a pan-European or global basis.”
“The combination of the different qualities we have and the ability to bring them together under one banner enables us to share knowledge across borders much more easily and show our clients where we can assist them best,” adds Baumann. “For example our Italian colleagues are very good in the medical malpractice business, so if a clinical trial goes wrong in Belgium, the Netherlands or Germany we can tap into that expertise”.