Evolving Liability Conference 2021 | Summary

Most COVID‐19-related claims and associated litigation have focused on first-party losses related to business interruption (BI) rather than third-party claims in liability lines. However, as economies gradually open up and recover, industry practitioners are steeling themselves for potential liability claims.

The Geneva Association’s Evolving Liability Conference, held in a hybrid setting in London on 27–28 October 2021 and co-organised with Lloyd’s, explored the long-term implications of the pandemic for liability insurance. It started from a wide-angle view of the possible post-COVID-19 risk landscape before narrowing the focus to COVID-19 itself and lessons for liability insurers.

Jad Ariss, Managing Director of The Geneva Association (top), opened the conference. Cameron Murray, Head of Government Policy & Affairs, Lloyds (bottom), provided introductory comments.

Alex Budzier, CEO of Oxford Global Projects, and Fellow at the Saïd Business School, University of Oxford.

In his keynote address, Alex Budzier, CEO of Oxford Global Projects, and Fellow at the Saïd Business School, University of Oxford, discussed rare events like pandemics from a basic, statistical perspective.

Typically we assume that observations on particular events tend to cluster around the mean (forming a normal distribution). Unusually large or small observations tend to be followed by outcomes that are closer to the historical average experience. But many natural and man-made phenomena do not sit well within this ‘regression to the mean’ framework. In fact, many extreme events, including outbreaks of infectious diseases, seem to occur with more frequency and impact than expected if they followed a normal distribution. The ‘regression to the tail’ framework explicitly recognises this tendency for new events to be an even more extreme than the most extreme to date.

Fortunately, not all unusual outcomes are true Black Swans in the sense that they seemed impossible or no one had considered them before they occurred. Rather, the frequency of some outsized events such as  pandemics and forest fires, as well as incidents like cyber and terrorist attacks, resemble those from standard, well-known ‘fat-tailed’ distributions which attach relatively high probabilities to extreme outliers and whose properties are well understood.

Armed with that insight, we can be better informed about the potential for extreme events to occur. However, this does not necessarily mean we have perfect foresight. It may be hard to establish which particular fat-tailed distribution best fits the pattern of past observations.

Prudent risk managers at all levels – individuals, firms and governments – would therefore be wise to recognise cognitive and other behavioural biases that may erroneously lead to a perception of mild risk, and build more contingencies into their decision-making processes so as to better absorb extreme outcomes and bounce back faster afterwards.

Applied to COVID-19, the regression to the tail framework underlines that while the timing of the infection outbreak was unclear, the probability of such an extreme event itself was massively underappreciated. Moreover, in their handling of the pandemic, many governments failed to adopt sufficiently precautionary measures to ‘cut the tail’ by reducing transmission of the disease through, for example, rapid adoption of mask wearing, effective track-and-trace mechanisms and comprehensive lockdown regimes. Sadly, as a result, many more people were affected than otherwise might have been the case.

In person: Darren Pain, Director Evolving Liability, The Geneva Association (left); Clive Sherwood, Team Leader, Casualty Risk Consulting, AIG (right). 

On-screen: Tim Fletcher (Chair), Senior Emerging Issues Specialist (top left), Gen Re; Luke Leung, Director, Sustainable Engineering Studio, SOM (bottom left); Chris Storer, Senior Executive Manager, Cyber Centre of Competence, Munich Re (bottom right). 

The first session considered how the physical risk landscape might permanently shift as economies emerge from the pandemic and transition to a ‘new normal’.

Key messages:

• Many trends, such as growing and ageing populations and ongoing urbanisation, were well underway before COVID-19. The pandemic will not arrest these secular developments but it will influence how the built environment evolves: how cities are designed, how transport systems are configured and how buildings in which people interact are organised.
• Heightened awareness of the spread of infectious diseases and associated vulnerabilities will shape key decisions about how we want to live, work and shop. The desire for more green spaces, more open and equitable surroundings, better air quality, more protective types of materials etc., will all affect individuals’ risk exposure.
• Working from home is not necessarily safer. The risk of infection through the spread of airborne diseases may actually be greater in a domestic environment than in offices or factories because mitigants like air filtration are harder to deploy. Cybersecurity risks are also higher.
• Liability insurers must stay alert to the ways in which the risks they underwrite will change beyond the pandemic. Technology will help to enable more granular risk measurement, both temporally and spatially, which facilitates more accurate underwriting. More generally, insurers can benefit from greater collaboration with experts from other disciplines to help promote risk prevention and mitigation as well as design appropriate risk transfer solutions.

In person: Darren Pain (Chair), Director Evolving Liability, The Geneva Association.

On-screen: Barry Naisbitt, Associate Research Director, Global Macroeconomics, NISER (left); Andrea Scascighini, Casualty R&D Head, Swiss Re (right).

Alongside changes in the physical risk environment, the pandemic could also affect the severity of future insurance payouts. This session reviewed how far COVID-19 might impact claims inflation trends through both macroeconomic and non-macroeconomic channels.

Key messages:

• COVID-19 has pushed costs and prices higher. This is especially true for durable goods, although more general indicators of inflation, such as wage growth, have also picked up. Medical inflation – a significant driver of workers’ compensation claims – has also increased recently.
• Some of this upward price pressure is transitory, but some may prove persistent if increased inflation becomes embedded in firms’/households’ expectations that frame their wage and pricing decisions. Despite the increased uncertainty about the economic inflation outlook, a return to high inflation seems  unlikely.
• The pandemic could yet amplify some of the non-economic factors that were previously boosting claims. For example, COVID-19 may further harden judge/juror attitudes against corporates who put employees and customers at risk of harm. It may also encourage more aggressive tactics of the plaintiffs’ bar, perhaps aided and abetted by the spread of litigation funding.
• Such societal and legal influences are an important component of claims inflation, especially for general, professional and auto liability lines. However, they are challenging to predict and plan for, let alone mitigate. Uncertainty about the expected frequency and severity of claims increases the amount of capital that insurers need to hold and thus affects the level of premiums needed to supply coverage.

Andrew Hornsblow, Head of Healthcare, Dale Underwriting Partners; Darren Pain (Chair), Director Evolving Liability, The Geneva Association; Neil Beresford, Partner, Clyde & Co; John Pilkington, Executive Underwriter, Ascot Syndicate; Kevin M. LaCroix, Executive Vice President, RT Pro Exec, RT Specialty.

Damage caused by infectious diseases and associated business responses do not automatically justify claims for compensation. However, legal doctrines evolve over time as cases are filed and the associated judgements shape liability laws. Speakers in this session highlighted how, at this stage, pandemic-related liability trends remain difficult to discern.

• There have been few actual COVID-19-related liability cases so far. In part at least, statutory liability shields, brought in during the height of the pandemic, may have deterred or postponed lawsuits. So overall, it is not yet clear how liability insurance coverage will respond.
• The legal obstacles to establishing liability for harm related to the pandemic are significant, but there are a number of important areas where the resolution of legal uncertainty surrounding COVID-19 could yet influence how far companies will face pandemic-related liability. These include:
  • Breach of duty – to the extent that the coronavirus was already pervasive when infection occurred, it may be unreasonable to hold a company liable.
  • Burden of causation – some courts have explicitly rejected the strict application of the ‘but for’ test[1] for the causal link between COVID-19 and physical harm, opening up the potential for liability cases to be brought based on the lower standard of increasing the likelihood of infection.
  • New sources of harm – claims for anxiety and distress linked to the pandemic are emerging, and vaccination mandates have yet to be legally tested.
• Workers’ compensation and employers’ liability lines could still face claims pressure from COVID-19. Expanded presumption rules in some U.S. states in favour of infected employees were perhaps the first clear sign that lawmakers are prepared to break away from traditional theories of causation. Vaccination ‘passport’ rules and return to work protocols could trigger lawsuits against employers.
• Medical professional liability claims related to increased mortality or morbidity due to deferred or foregone care during COVID-19 may emerge.
• There is increased potential for event-driven D&O litigation and associated claims. However, there have been relatively few cases so far, and those brought have often failed to progress beyond the motion-to-dismiss stage, underscoring the legal challenges to attaching pandemic liability to companies for harm suffered by third parties.

n person: Darren Pain (Chair), Director Evolving Liability, The Geneva Association; Ingrid Hobbs, Head of Complex Casualty Coverage, Kennedys Law; Kirsten Mitchell-Wallace, Head of Portfolio Risk Management, Lloyd’s.

On-screen: Mark Cavanaugh, Vice President – Counsel, State Farm; Corinne Vitrac, Head of Group P&C Risk Management, AXA.

The final panel discussion considered the pandemic-related claims experience thus far and the main takeaways from the COVID-19 pandemic for liability insurers.

• While overall losses and liability claims in particular have generally come in lower than expected, panelists concurred that it is too early to draw a line under the pandemic – it is still a ʻlive event’. This echoed an online poll of the audience which showed that close to 70% of conference participants thought it was simply too early to assess the importance of COVID-19 for liability insurers.
• More than a quarter of participants believed the pandemic might have significant long-run effects. Unclear language and a lack of exclusions in liability policies could invite legal challenges over coverage which, unlike with BI, could prompt less favourable judgements towards insurers, especially if societal preferences over corporate liability for harm from infectious diseases have shifted.
• Liability insurers should remain vigilant to the impact of potential third-party liability claims. Long-COVID exposures are not yet fully understood and could lengthen the tail of future insurance liabilities. At the same time, the potential for loss accumulation in liability seems much less than for property lines given the limited scope for correlated exposures.
• In light of the ongoing legal disputes over payouts on business interruption insurance during the pandemic, insurers will likely tighten policy language for extensions/exclusions to close off future liability for communicable diseases, even if claims continue to undershoot expectations. More positively, panelists agreed with the audience survey that suggested the episode could also catalyse product innovation (29% of conference participants highlighted this as a possible outcome). This is particularly the case if data standards and exposure management modelling of liability risks can be improved.

Members can view the password-protected recording here. If you can not find the password in your email, please contact events@genevaassociation.org.

[1] The but-for test says that an action is a cause of an injury if, but for the action, the injury wouldn't have occurred.