In a recent episode of IB Talk, Walid Youssef and Chris Muir of Travelers Europe shared their insights into the impact of today’s macroeconomic challenges on financial & insurance institutions, highlighting how businesses can make intelligent decisions in an ever-shifting economic landscape.
Exploring the impacts of high inflation, rising interest rates and changing fiscal policy on the insurance landscape, Youssef noted that the factors have not yet translated into the increased frequency or severity of claims and notifications. However, he highlighted that there are a number of different factors both from a D&O and PI perspective that Travelers Europe is keeping a watchful eye on.
“Some of the other areas we’ve historically seen claims rise in terms of economic turmoil as well, is around the crime cover that we give,” Muir added. “There’s often an increased motivation, especially for employee-driven frauds in times of crisis. People are struggling to make ends meet, which can lead them to take desperate measures and potentially see value in stealing from their employers.
“This can also sometimes be more easily facilitated when businesses are looking at cutting back at that CapEx level. Often the first areas to see cutbacks are those that don’t bring any income to the company - so think of areas such as compliance and internal audit. If cuts are made in these areas, it often makes it easier for fraud to be perpetrated or certainly less likely that they will be discovered.”
On the other side of that, he said, a lot of long running frauds are discovered in times of economic hardship. Those running businesses will look at every cost and outgoing of the business and so it’s often then that concerns such as expense fraud are discovered. One of the other areas where insurers tend to see an uptick in claims during a recession is with regards to employment practices liability.
“When businesses are looking to cut costs, they will quite often look at headcount and look to make redundancies to reduce their headcount and their wage expenses,” Muir said. “Now there’s very strict laws in place in the UK to govern how these procedures are undertaken, which includes undertaking a collective consultancy and using a fair rating matrix as to how individuals are selected for redundancy.
“Failure to follow these procedures can lead to unfair dismissal claims, which can get quite expensive. And if you fail to follow the procedures for one employee, there’s a significant chance you may have failed to follow the procedures for all employees and therefore you can get a claim from a large number of disgruntled employees that you’ve made redundant.”
