The UK’s departure from the European Union, especially in the event of a no-deal, could expose companies to claims not traditionally covered by insurance, an insurance expert has warned.
Insurance governance firm Mactavish warned company directors may face increased liability risks if they fail to prepare for Brexit as any claim against their directors and officers (D&O) insurance is expected to be "scrutinised and negotiated aggressively".
The Association of British Insurers defines D&O as protection against the cost of compensation claims made against directors and key managers of businesses for alleged wrongful acts.
The firm suggested a company suffering a "performance dip or interruption" following Brexit could be liable to scrutiny over whether their preparations for the departure from the EU were adequate.
Mactavish warned if their preparations compared badly with those of peers it may lead to an influx of new D&O actions against board members, for which existing policies may not offer sufficient cover.
A Mactavish spokesperson said: "Unless a company’s D&O policy has been specifically reviewed and negotiated, it is unlikely to be reliable because there will likely be far too many exclusions to cover and ‘outs’ for insurers.
"Policyholders should expect claims to be scrutinised carefully and negotiated aggressively if they spike."
Bruce Hepburn, chief executive at Mactavish, said the "key insurance challenge" had stayed largely under the Brexit radar despite affecting almost every UK business.
He 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."