Liability concerns over product recalls, shareholder suits, the fallout from financial market woes and other emerging risks have stifled innovation and monopolized the focus of company boards, Lloyd's of London warned in a new report.

The report, released last month, “Directors In The Dock–Is Business Facing A Liability Crisis?” said board directors are spending about 13 percent of their time dealing with liability risk. It urged risk managers to better anticipate and prepare for future liability exposures.

Lloyd's said research reveals a growing concern among business leaders about the rise of a U.S.-style compensation culture in Europe and Asia, as well as liability fallout from the current instability in the financial markets. It also highlights the future liability issues for which boards should be preparing.

Sean McGovern, director and general counsel at Lloyd's, told National Underwriter that the report demonstrates the “complexity of the business environment around the world,” and that “global business and the increase of regulation are making it more difficult for businesses to manage their liability exposures.”

One message that comes out “loud and clear,” he noted, is that “liability issues are constraining businesses in their approach to innovation and risk-taking, with a consequence and impact on the prices of their products and services, but also the willingness to engage in providing new products and services–particularly into new countries.”

Mr. McGovern said a fascinating aspect of the report is “there seems to be a clear indication at the board level of what they should be doing.” He said boards are aware of their complex operating environment and how they should be managing their risks.

“They need to take time to train their staff and imbed the right kind of risk management culture, and use technology to better understand their risks,” he added.

But while boards understand their responsibility to stay on top of emerging exposures, “there is a yawning gap between what they should be doing and what they are doing in practice,” he added.

“Litigation is a leveler of modern businesses,” observed Lord Peter Levene, the chairman of Lloyd's, commenting on the findings in a statement.

“No matter what their size, location or industry, all businesses are facing increasing liability risks,” he added. “Product recalls are now a daily occurrence–rising 50 percent in Europe alone in the last year. Shareholder activism is on the rise, and a complex operating environment and new legislation serves to increase risks further.”

Lord Levene noted that an increase in litigation and fear of potential liability “is impacting customers through a rise in the cost of products and services, and also stifling risk-taking among boards who are missing out on new opportunities.”

At Lloyd's, he said, “we know that taking risks is part and parcel of doing business, but our research shows that there are clear benefits to thinking differently about the liabilities they face and developing the right culture and structure to manage them more effectively.”

The report launches the third series of the Lloyd's “360 Risk” project, which aims to generate debate about today's key risk issues and how best to manage them.

Lloyd's said its report, written with the Economist Intelligence Unit, included a global survey of more than 180 board-level executives, supplemented by in-depth interviews, to provide a broad business perspective on the issue of liability risk management.

Mr. McGovern told NU that one-third of the survey respondents were in the United States, a third were in Europe, and the rest were in Asia and other parts of the world.

Special Reports /

Liability Concerns, Fear Of Emerging Risks Stifling Innovation, Lloyd's Report Warns

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