The directors of virtually every listed UK company face major liability risks for failing to prepare adequately for Brexit, especially if there is a ‘No Deal’ outcome, according to Mactavish, the leading expert on commercial insurance governance and disputes.
Mactavish believes UK directors have massively overlooked these new liabilities, which could leave them personally exposed to legal actions because of traditional limitations applied to ‘Directors and Officers’ (D&O) insurance cover.
Even within the insurance sector, the Brexit focus has been diverted towards European passporting rights and the operational challenges facing insurers and brokers, Mactavish says.
Critical new insurance risks highlighted by Mactavish as being created by Brexit include:
- Any company suffering a performance dip or interruption following Brexit – which will be virtually every company under ‘No Deal’ – will be liable to major scrutiny of whether their preparations were adequate
- If their preparations compare badly with those of peers, this will give rise to a glut of new D&O actions against board members
- Longer term, the regulatory disruption caused by Brexit will leave large swathes of uncertainty for many years as to the details of new regimes applying on a sector by sector basis. This will exponentially increase the risk of unanticipated regulatory action or censure – a key area of D&O insurance cover
Bruce Hepburn, CEO, Mactavish said: “There are many stories speculating about impending Brexit doom yet a key insurance challenge affecting almost every UK business has stayed under the radar.
“D&O insurance policies are extremely complicated and cover is bound up in a labyrinth of inter-connected policy definitions, policy triggers and cost categories, so that most company directors are far from clear on what they are actually covered for.
“This situation is becoming even harder for insurance buyers to manage in recent months because corporate D&O is one of the first areas of the insurance market to show signs of higher premiums and less flexible terms. What this means in practice is that once claims come in, it is usually too late to make any changes to policies and directors may not be covered.”
Mactavish points out that unless a company’s D&O policy has been specifically reviewed and negotiated, it is unlikely to be reliable because there will likely be far too many exclusions to cover and ‘outs’ for insurers. Policyholders should expect claims to be scrutinised carefully and negotiated aggressively if they spike.
Recent Mactavish research has suggested that as much as 45% of all large/complex insurance claims are disputed.
Mactavish is the UK’s leading expert on insurance governance. It has been operating in the commercial insurance sector for over 15 years.