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Developments in the liability landscape: insights from Swiss Re survey

A select number of industry experts provide their thoughts for the first Swiss Re Liability Dynamics survey, giving a picture of current liability trends and their possible direction.

The survey provides a current view of informed opinions by 44 experts. It is intended to advance the industry debate and encourage discussion about the implications of liability trends for the re/insurance industry.

One insight from the survey is that only two of the listed risk categories are actually considered more severe than liability dynamics: natural catastrophes and financial crises. Both have also a considerable number of “equally severe” votes. For all other risk categories that the survey lists, the view prevails that the impact of "liability dynamics" on the insurance sector is comparatively more severe. This is remarkable.

Moreover, about half of those respondents with global responsibilities rate the severity of "liability dynamics" as being on a par with climate change, insurance regulation, international terrorism / political risks and aging population / longevity.

Continuing spread of collective redress regimes

Concern about the spread of collective redress regimes in civil justice systems, especially in Europe, remains substantial. Respondents see this trend continuing unabated over the next two years.

Consequently, re/insurers need to continue monitoring developments closely. Consumerism / litigiousness can be interpreted as one of the drivers behind the expansion of these legal instruments,while the spread of litigation funding – also high on respondents' minds – is a corollary of this political development. Directors & Officers liability ranks high as the one line of business likely to be most impacted by the spread of collective action instruments.

In terms of regulation, the survey shows that the industry experts' expectations of substantially negative regulatory responses remain very limited. Rather, respondents see neutral or only moderately adverse reactions on the regulatory side.

Litigation funding expected to grow

Litigation funding is clearly on the move, and respondents see it accelerating further over the next two years. Based on the experience with the US tort system, private litigation funding is identified as one of the potential sources of conflicts of interest and of unmeritorious litigation. Consequently, from an insurance industry point of view, this calls for active involvement in the regulatory and legislative dialogue to ensure that adequate regulation is developed in step with the potential admission of private litigation funding.

Three drivers emerge as accelerating

Respondents highlight a trio of accelerating drivers. The first is  the spread of collective redress / collective action instruments to more countries – especially in Europe. Half of respondents with responsibilities in North America see the outlook as stable, while over half of respondents with global responsibilities and slightly under half of those with European responsibilities see acceleration here.

Second, the rise in compensation levels: half of respondents with responsibilities for Europe or globally are concerned that this is on the increase. By contrast, only a quarter of respondents with responsibility for North America share this view, while half see the outlook as "stable".

Third, the opening of new channels and theories of liability – as currently witnessed in the United States in the context of climate change-related litigation. While respondents with responsibilities in North America are spread evenly with half having a "stable" outlook and a quarter each seeing this as "slowing" or "accelerating", half of the "globals" are concerned about an accelerating tendency in this regard. Respondents with responsibilities for Europe are even among "stable" and "accelerating".

Published 19 August 2011

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