The Changing Nature of Business Risk: Will General Liability Still Cover You?

The Changing Nature of Business Risk and Liability

With an expected industry combined ratio of 103 percent for 2019,1 general liability (GL) losses in the U.S. continue to challenge businesses. Technological, legal, and third-party outsourcing trends are introducing new variables to complicate GL and other liability exposures.

“In the current landscape, determining culpability is no longer black and white. Employers, third-party vendors, manufacturers, and others could be drawn into liability battles that result in lengthy, expensive litigation,” said Doug Manwaring, Chief Underwriting Officer, Excess Casualty, Liberty Mutual Insurance.

This expanding liability has led to upticks in both the frequency and severity of liability claims for businesses across industries.

Understanding the trends impacting liability losses can reduce your company’s vulnerability and increases its ability to respond to changing market conditions.

Technology Expands Multi-party Liability

The rapid growth of technology is introducing new variables to the liability equation while also blurring the lines of responsibility. In a semi-autonomous vehicle accident, for example, which party is at fault? The driver may not be solely to blame. The owner of the vehicle, the original equipment manufacturer, or even the company that developed the vehicle’s software could also be held liable.  

Notes Manwaring, “Businesses should also consider how new technologies may affect the ‘foreseeability’ of incidents.”

As an example, a plaintiff could argue that a manufacturer that touts that its autonomous vehicle drives safely with limited human involvement should have foreseen the possibility of an accident due to malfunction.

Additionally, as companies automate more processes across the value chain, such as through 3-D printing, artificial intelligence, robotics, and more, they are likely to be held increasingly accountable for the development, adoption, and outcomes of such solutions.  Often companies fail to foresee these types of events because there is no precedent for them—another consequence of rapidly changing technology.

Shifting Juror Views Drive Costlier Verdicts

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These complex liability scenarios are now making their ways into courtrooms, and in many cases, juries increasingly favor claimants—likely due to a different sense of social responsibility among younger jurors. These jurors expect businesses to be good corporate citizens, to go above and beyond to protect their employees, and to use their resources to benefit society. That includes paying for physical damages as well as the non-physical damage experienced by an injured party.

Because of shifting juror views, awards for non-economic components like punitive and pain-and-suffering damages are on the rise.

“We are seeing an increase in the ratio of non-economic to economic damages for claims that do go to verdict. That’s driving up valuations across the board. Claims are more frequently piercing higher layers of coverage, for larger amounts than they have in the past,” said Jessica Rogin, Vice President, U.S. Casualty Claims – Specialty, Liberty Mutual.

A Tight Labor Market Leads to Outsourcing

Even with the U.S. unemployment rate at record lows, the need for skilled workers—especially drivers—has never been greater. Because of this tightening labor market, along with heightened competition, more companies are outsourcing certain activities to third parties via the sharing economy. While this practice helps meet demand, scale the business, and hasten growth, it can also usher in additional liability exposures.

“As companies automate more processes across the value chain, the technology they use may create new exposures.”

As an example, the growing e-commerce industry and consumer demand for one-day or same-day shipping have driven up the volume and speed of deliveries, putting the pressure on manufacturers and distributors to move inventory quickly. To meet increased demand, companies often outsource delivery to third parties—including individuals using their personal vehicles.

“That introduces a whole new element of risk,” Manwaring said. “Often companies will outsource thinking they’ve eliminated their auto exposure. But they may still be responsible for ensuring that a qualified driver is behind the wheel, even if it’s not a company vehicle or your employee.”

Staying Ahead in a Changing Risk Environment

To stay ahead in today’s rapidly changing risk environment, companies should reassess exposures, review existing coverage limits, and sharpen risk mitigation strategies.

A good first step is working with insurance partners to understand how trends affect exposures and losses. With this information in hand, a company is better equipped to review, update, and enforce safety and other policies as needed to mitigate new risks.   

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In addition, work with your legal department to track third-party outsourcing and evaluate contracts to ensure they adhere to specified service standards; meet hiring, safety, and confidentiality practices; have risk management programs in place; and maintain essential insurance coverage.

Finally, with the rise in frequency and severity of liability claims, a company may also need to enhance its risk transfer program, such as by increasing limits on core, as well as umbrella and excess coverages.

By taking these steps, a company sends a message to employees, suppliers, vendors—and even potential jurors—that it takes safety seriously and is also better protected in the event of a loss.

Liberty Mutual has a long history of helping businesses mitigate new risks. For more information on staying protected, visit our article on rising juror verdicts.

1Conning Insurance Segment Report. Conning Total Industry Forecast 2018 Q4.

This website is general in nature, and is provided as a courtesy to you. Information is accurate to the best of Liberty Mutual’s knowledge, but companies and individuals should not rely on it to prevent and mitigate all risks as an explanation of coverage or benefits under an insurance policy. Consult your professional advisor regarding your particular facts and circumstance. By citing external authorities or linking to other websites, Liberty Mutual is not endorsing them.