According to recent reports from Gallagher Specialty and Willis (WTW), the challenges facing the directors and officers (D&O) insurance market can be quite different from country to country. Global concerns for insurers include regulatory pressures and economic uncertainties. However, some stakeholders suggest that Australia’s D&O market is a more positive environment and currently offers brokers opportunities and “predictability.”
“Australia is seen as an attractive market,” said Nicole Wearne (pictured). Wearne is a partner in global law firm Kennedys’ Australian financial lines insurance team.
Wearne said a number of new entrants is driving prices downwards.
“We have seen regular falls in premium for D&O year on year for the past three+ years, with a 10% decline in the past 12 months, so we have a soft market,” she said. “In addition, globally there is more capacity with plenty of new capital available.”
Another driver of relatively rosy conditions Down Under: defendants have been successful, said Wearne, in defeating six from six recent securities class actions.
“The risk of larger payouts has fallen significantly as a result,” she said.
However, Wearne does expect to see continuing class actions but not in the same numbers as previous years.
“Litigation funders and plaintiff law firms are likely to be more circumspect,” she said. “We expect to see a more careful focus in establishing market causation through expert evidence but this will require disciplined analysis of the assumptions to establish market-based causation loss.”
She said litigation funders are more likely to focus on other types of claims, including consumer class actions, arbitration, private commercial disputes (including IP) and cyber/privacy litigation.
“Brokers will be looking for more generous wordings and insurers are likely to be prepared to extend cover to compete for new or renewal business,” she said.
However, the economy is still a D&O challenge. For example, through insolvencies.
“Liquidators are proactively investigating directors’ breach of duty and insolvent trading recovery litigation,” said Wearne. “Ensuring that policies contain Inquiries cover extending to liquidators examinations, and that the cover does not contain a broad insolvency exclusion, are key considerations.”
She said with all the geopolitical uncertainty, it’s difficult to predict the months ahead.
“I think it will be steady as she goes, with pricing potentially plateauing in the next 12 months,” said Wearne.
Two recent reports help place Australia’s D&O market in a global context and suggest some of the risks that may be in its future.
“In Australia, a surplus of capacity continues to drive favourable outcomes for clients,” said the authors. “As pricing reductions begin to plateau, brokers are focusing on expanding coverage with new bespoke wording and diluting exclusionary language.”
The report also referred to reassessments by local underwriters, a growing appetite for markets to target low excess layers and innovative offerings from the London market.
WTW’s survey, released in late March, canvassed the views of dozens of directors and officers and risk managers from companies around the world, including in Australia. Based on the answers, the report ranked the top seven financial and reputational risks concerning boardrooms around the world.
For the second year in a row, health and safety risks topped the ranking, including worries about workplace physical health and safety and mental health.
According to the survey responses, concern about cyberattacks has reduced compared to recent years. Despite media attention and industry talk, WTW found that “AI is not showing up as a concern.”
Climate change and pollution risks also decreased in the findings, but social risks are increasing.
WTW’s top seven global D&O risks, from most concerning to less, were as follows:
1. Health and safety
2. Data loss
3. Cyberattack (excluding extortion)
4. Regulatory breaches
5. Systems and controls
6. Civil litigation and third party claims
7. Bribery and corruption
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