UK: 1st Annual MENA Financial Lines Symposium 2016

Last Updated: 1 February 2017
Article by Mark Beswetherick

We have drawn together some of the key issues discussed during the Symposium below which we hope you will find of interest.

The morning of the Symposium was devoted to looking at professional liability, construction and cyber issues, and opened with a snapshot of the global landscape for professional liability risks from Simon Konsta, professional liability specialist in London, and Clyde & Co's senior partner. Simon discussed that professional services firms are facing new forms of unpredictability and disruptors which will present a host of new challenges for insurers to grapple with, including how standards of skill and care will be judged, and client expectations managed as use of technology and AI develops. At the same time, there are a number of developing themes shaping the PI claims environment, including: (i) the development of class actions globally; (ii) growth of litigation funding and the likelihood of its increased use for professional liability claims; (iii) how the globalisation of firms is shaping the map of PI losses; (iv) the movement of regulatory pressures up the agenda; and (v) the role of professionals as gatekeepers of good corporate behaviour.

A panel of MENA professional liability specialists,  Clyde & Co Partner Mark Beswetherick, Liberty's Nicky Stokes and Simon Bell from Marsh considered the challenges and opportunities across the MENA region. The panel discussed that there is an ongoing need for customer education in the market, which remains price driven, and challenges presented by a mismatch between European derived wordings and local liability regimes. Construction PI currently dominate the picture in the region, although developments are likely in the FIPI market, driven in part by an influx of more sophisticated companies into the DIFC, and Technology E&O is also seen as an area for growth.

The construction PI market, which has recently seen the role of construction professionals being thrust into the spotlight as a result of the Qatari floods and Dubai tower fires, was the focus of the panel chaired by Partner Alfred Thornton, joined by underwriters Annemieke Clancy from AIG and James Cross from Zurich. The panel discussed whether the market is facing a "perfect storm". The panel opened with a discussion of how economic conditions, and in particular the price of oil, are impacting the regional construction market, and changes in the way construction projects are financed, with a move towards PPP. The bear market conditions, and the dominance of price considerations over scope of cover, was identified as presenting challenges to underwriters, as was the long-tail nature of the liabilities involved. The pre-dominance of SPPI in the region, as opposed to annual policies, was recognised as a defining feature of the local market. The panel considered that going forward, risk selection and carefully drawn exclusions will be critical for underwriters writing construction PI covers. Education of the market was also recognised as being important, particularly as liabilities have the potential to significantly exceed limits.

The role of risk management strategies in avoiding professional liability claims was tackled by Clyde & Co's Michael Morris and Thomas Herd,  a key issue being the extent to which liability limitations, exclusions and caps will permitted and upheld in the region. Given the high level of litigation risk in the UAE, a core issue for the market is whether choice of law and jurisdiction clauses will be upheld. Arbitration clauses (if properly drafted) and clauses specifying DIFC law and jurisdiction were more likely to be respected by local courts in the region than clauses opting for foreign jurisdiction or governing law.

Clyde & Co's Shabnam Karim, in discussion with Clydes Partner James Cooper, Aisling Malone from AIG and Scott Davies from Aon,  drew the morning to a close on the highly topical question of how the Cyber liability and Tech PI market is developing in the region. The panel looked at some recent incidents across the Middle East and globally, and that the cover requirements are no longer intellectual property driven, with increasing incidences of property damage. Targets for cyber-attack have expanded out from financial institutions to all types of organisations. The panel agreed that cyber security is now a board room issue, and that D&O claims were to be expected in the future, the US Wyndhams action being an example. Although no notification requirements exist in the DIFC/UAE, experience from other jurisdictions has shown the vast costs that can ensue from a data breach. Key underwriting considerations include getting adequate information from insureds, and industry wide concerns about the potential for aggregation risk across multiple business lines.

The afternoon session focussed on Financial Institutions, BBB, Crime and D&O insurance, and opened with a panel of Clydes specialists Ned Kirk (New York), James Cooper (London), and Ian Roberts (Singapore) chaired by Mark Beswetherick looking at global trends in D&O insurance coverage. With the increase in regulatory investigations and actions in the US, a key issue is when dishonest act and conduct exclusions will bite (and in particular the status of admissions and what amounts to a final adjudication),  and in what circumstances insurers can and will seek a recoupment of defence costs. Continuous cover clauses, a relatively new concept in the Middle East, are much more common in Asia, and the panel talked through how these clauses operate, their interrelationship with other parts of the policy and some grey areas, drawing upon the recent UK decision in Arc Capital v Brit. Investigations are on the rise in the MENA region and across the UK, US and Asia, as are the costs of those investigations, and the panel looked at policy triggers, noting that there has been a shift in both the UK and US towards less formal methods of investigation, with US cover now extending to pre-investigation costs.  As wordings broaden, professional services exclusions, intended to delineate the boundaries between PI and D&O cover have come increasingly under the spotlight, and the panel discussed their experiences of these clauses, with reference to the Australian St Kilda Road decision. The panel later returned to look at liability issues, with bribery and corruption a key issue in the MENA region, impacted by the long arm reach of US and UK legislation, with the latter having a better toolkit with the introduction, relatively recently, of the Bribery Act and deferred prosecution agreements. The US SEC and the DOJ are actively pursuing FCPA cases globally, and investigations can be long and costly. Asia too, is seeing an increasing incidence of sophisticated frauds. Individual accountability, a regulatory focus in the Middle East, mirrors the trend elsewhere, with the Yates Memo in the US, focussed upon targeting and holding individuals to account, and the UK's Senior Managers Regime being just two examples. MAS in Singapore showed its teeth following the price-fixing of SIBOR by disqualifying 133 traders. Collective actions, currently not a feature of the landscape in MENA, are gathering a head of steam in the UK, with a number of shareholder claims on foot, and rumours that the new opt-out regime, introduced by the Consumer Rights Act 2015, will be utilised to bring claims related to Forex manipulation. The UK position is, of course, nowhere near the scale of class actions seen in the US where the likelihood of actions against public companies is higher than ever, and foreign companies are increasingly targeted.    

The current state of the Middle East D&O market was debated by panellists Mark Beswetherick, Alex Blom, AIG, James Johnson, Willis and Tim Tovel, DP World. The panel discussed that increasing regulatory activity in the financial hubs, new company and insolvency laws, and business activity becoming increasingly global all pointed towards an uptake in demand for D&O cover and that the volume of notifications and claims activity is increasing. The panel focused on some of the larger D&O liability claims taking place in the region, as well as change in legislation, such as the new UAE Companies Law which has an impact for Directors in the UAE. The session also drew on the impact of regulatory changes in other jurisdictions and how regulators in this region, such as the DFSA are adopting similar approaches, with an increased focus on management responsibility.

Shabnam Karim alongside panellists, Neil Daws of Lockton, Rajul Gohil of Talbot and Andrew Jacob of Charles Taylor Adjusting drew the day to a close looking at the question of whether BBB and crime wordings are fit for purpose. The panel's overriding view was that developing methods of cyber and electronic crime such as social engineering, ransom-ware and cyber extortion meant that crime policies were being tested in ways that had never been envisaged when the wordings were developed, an example being the KFA81 wording, which was drafted long before the sophisticated (and specifically computer based) frauds currently troubling the market were developed.

The event was the first of its kind in the region and demonstrates the breadth of knowledge and expertise of Clyde & Co's leading financial lines team, both regionally and globally. We would like to thank all the participants and attendees of the event who contributed to making it a real success and a special thanks to the panellists who travelled internationally to participate in the event.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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