UK company directors ‘legally exposed’ by poor Brexit plans
Mactavish says UK company directors have overlooked new liabilities, which are not covered by existing insurance policies.
Directors of Britain’s biggest companies could face significant liability risks for poor Brexit preparation, particularly if the UK crashes out of the European Union without a deal, according to an insurance consultancy firm.
Mactavish said directors of UK-listed companies have largely overlooked new Brexit-related liabilities, which are not covered by most existing insurance policies, leaving them exposed to potential legal action.
It said there are limitations applied to the Directors and Officers (D&O) insurance cover.
So far, the focus has been on protecting passporting rights, which allow financial services firms to conduct business across the EU, and operational issues facing insurers and brokers, but Brexit has created new insurance risks.
Mactavish said if the performance of a company dips after Britain leaves the bloc on March 29, the company could face closer scrutiny on whether its Brexit plans were adequate.
If its preparation compares badly with peers, this could give rise to a host of legal actions against board members.
In the longer term, Mactavish said regulatory disruption caused by Brexit may increase the risk of unanticipated regulatory action.
Mactavish chief executive Bruce Hepburn said: “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 said insurance policies need to be specifically reviewed and negotiated, if not the policy is unlikely to be reliable as there will be too many exclusions to cover.
The research comes as Prime Minister Theresa May tries to win over sceptical MPs to back her EU withdrawal deal, which Parliament will vote on in January.
The Government recently said it would write to thousands of businesses that trade with the EU, urging them to activate contingency plans for a possible no-deal, while HM Revenue and Customs is to send out updated information packs to firms.