As first seen on Insurance Age

 

Left reeling by pandemics, volatile markets, rising costs and labour shortages, UK businesses are also seeing a spike in legal disputes. ARAG MD, Tony Buss, explains why demand for legal protection is steadily rising with no quick end in sight.

 

These were challenging times for businesses, even before Vladimir Putin decided to invade Ukraine. While Brexit caused a seismic shift in certain business sectors, the pandemic has transformed the commercial landscape across the board. Now, a war in Europe is putting even greater pressure on companies of every shape and size.

Our problems here pale in comparison to those being inflicted on the people of Ukraine, but it would be difficult to overstate the impact that this war is already having on a global economy just starting out on the road to recovery after the pandemic.

Global crises create local problems

There has been plenty of talk about the growing cost of living crisis, but businesses are facing their own squeeze between rapidly climbing costs and customers unwilling or unable to pay higher prices. It is a mix that we know from experience will lead to more legal disputes.

While the pressures on different businesses vary, from the loss of international markets to supply chain issues, labour shortages to rising energy costs, all have the potential to create legal problems, with employees, customers, suppliers or even a regulatory body.

The first warnings came in the initial weeks of the pandemic, when we saw a huge spike in calls to ARAG’s legal advice helpline, particularly around employment law. While furlough certainly softened the blow, employment disputes are a growing risk for businesses of all sizes.

Tribunal troubles

The pandemic has led many to reevaluate their working lives, and employees under additional pressure because of labour shortages may be emboldened by the number of vacancies across many sectors. If they need to find another job, it’s certainly a seller’s market.

Resolving a dispute with a former employee is likely to prove even harder than finding a new one. Ministry of Justice (MoJ) data on employment tribunals for most of 2021 is overdue, but the backlog of cases is huge. At the end of 2020, there were 44,479 single claims outstanding in the employment tribunal system and, in some areas, cases are being listed more than a year ahead.

Rising demand for legal protection

It is unsurprising that many brokers have seen an increase in demand for all kinds of legal expenses insurance, from their commercial clients.

According to independent research that ARAG commissioned, almost half of the commercial brokers surveyed said they had already seen demand for legal expenses insurance increase over the previous 12 months and even more (56%) said they expect it to grow over the current year.

The trend for Employment Practices Liability (EPL) cover is even more pronounced, with more than two-thirds (70%) saying they had already seen demand increase with a similar number (72%) expecting it to increase further.

This certainly chimes with our experience at ARAG where quotes requested by brokers for EPL cover last year were up by 50% on 2019 and premium income from the resulting business is up even more.

Beyond employment worries

It’s not just employment issues that are causing headaches for business owners. Contract disputes are inevitably on the rise after the turmoil of the past two years and the civil courts are struggling with their own backlog of cases.

For the last quarter of 2021, the average time between issuing proceedings and a trial for fast and multi-track cases was almost a year and a half. The Small Claims Court is faring slightly better, but the average time between issue and hearing is still about a year.

Other areas of dispute are cause for concern too. The importance of recovering business debts has rarely been greater and HMRC has stepped up its investigations, notably around furlough payments and the wider support that government provided during the pandemic.

It would seem fair that companies who were not consciously fraudulent in their use of furlough should have nothing to fear, but such were the complexities of the evolving scheme that there could be considerable work in proving a business was compliant, or at least that any mistakes were innocently made.

No quick end in sight
While we are all hoping for a swift and peaceful resolution to the crisis in Ukraine, the fiscal issues that the war has exacerbated will take longer to work their way through the global economy.

Certainly, there will be commercial opportunities among the huge challenges that we’re all facing from energy costs, supply chains, labour shortages and the squeeze on disposable incomes, but businesses of all sizes should be prepared and protected for a long and bumpy ride ahead.

 

Disclaimer - all information in this article was correct at time of publishing.

 
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