In a historic year beset by unprecedented challenges, the need to understand insurance law reached a new level of importance. As lockdowns were imposed as a result of the COVID-19 pandemic, businesses all over Australia and the globe found themselves struggling with how to handle their insurance obligations, and the insurance law sector found itself in the spotlight as specialists in the field were called upon to share their knowledge. 2020 saw a number of landmark cases brought forward, including a business interruption insurance test case in the UK that aimed to clarify what businesses were entitled to from insurers as a result of the pandemic’s impact – a case that had significant implications for Australia as well.
A survey conducted by the Australian Financial Review last December revealed that insurance law was among the few fields to thrive in a year that saw many law firms tighten their belts. For instance, the focus of global firm Clyde & Co on leveraging its insurance connections enabled it to continue growing its workforce, and to play roles in key inquiries, including those involving the Ruby Princess cruise ship and the hotel quarantine in Victoria, as well as the quarantine test case by the Insurance Council of Australia.
Insurance specialists are also among the most in-demand legal practitioners in 2021, according to global recruiter Hays.
Rising client demand in a hardening market
According to Gilchrist Connell managing principal Richard Wood, the pandemic hardened an already-hardening market, due in part to the highly scrutinised business interruption test cases.
“The insurance market was hardening prior to COVID-19 – the first real hardening for almost two decades,” he said. “The factors behind this have been evident for some time – low interest rates, reduced investment profits, an increase in climate-related natural disaster claims, higher reinsurance costs, and, of course, the dramatic increase in class action claims of various types.”
This hardened market is anticipated to have a social impact on coverage in certain sectors, such as property and directors and officers’ insurance.
“Over the course of the pandemic, the hardening of the market generally – but particularly in certain aspects of property cover, directors and officers cover and indemnity covers for some classes of professions – will likely have a social impact in terms of governmental response to regulation and the ability of individuals or business to transact where their recourse to private market insurance is restricted,” Wood said.
In addition to dealing with the general operational issues faced by the legal profession – such as adjusting to remote work – insurance specialists have also had to learn how to identify and avoid the risks related to coverage, policies and claims in the new, COVID-19-driven environment.
“Insurers across the board will be increasingly looking to cut costs, keep control of their claims ratios and find price rises where possible. This is expected to produce further price rises in most areas and restricted scopes of cover,” Wood said. “The unanswered question is whether all insurers will play that game or whether some will move early to obtain market share by competing, either on price or scope of cover, out of sequence with the rest of the market. That creates risks, pressure and opportunity for the lawyers providing them with advice across all areas of their business.”
Along with business interruption, Clyde & Co highlighted claims related to travel, event cancellation, cyber and digital risk, contingency and employment as being on the rise among its clientele.
“We had in place a task force to ensure the advice given to global clients was consistent globally, which during the spike in COVID-19 claims was absolutely critical,” said Lucinda Lyons, who leads the firm’s insurance practice.
Critical claims during COVID-19
Carter Newell Lawyers confirmed that employment-related claims linked to new legislation were common among their clients in 2020.
“We saw an increase in claim numbers across the financial lines sector during 2020, particularly in employment practices liability claims arising out of the COVID-19 employment provisions,” managing partner Paul Hopkins said. “We also saw an exponential increase in requests from our corporate insureds seeking advice in relation to compliance with the federal and state legislation introduced as a result of the pandemic.”
He pointed out that lockdowns also drove the rising consideration of policy wordings, particularly in relation to exclusions in the Quarantine Act 1908 and the Biosecurity Act 2015.
“Looking at the year as a whole, insurers were impacted initially by bushfires and then by COVID-19-related coverage disputes as the industry responded to the changing landscape,” Hopkins said.
He also echoed Gilchrist Connell’s outlook on directors and officers’ claims increasing due to the “potential for important issues and deadlines being overlooked during the pandemic”.
“The rapidly changing and often unexpected turns in financial and property markets and looming insolvencies may see investors miss opportunities or suffer losses that they then attempt to sheet home to their adviser,” Hopkins said.
Both Carter Newell and Gilchrist Connell also spoke of a boost in cyber-related claims.
“Increased remote working has presented opportunities for cyber-attackers, with COVID-19 resulting in a rising number of phishing and social engineering events. Increased claims relating to coverage under cyber, media, and technology errors and omissions policies have been a feature of the pandemic,” Wood said.
Advancing in 2021
The growing use of technology has not been all bad for the insurance law sector, however.
“2020 challenged preconceptions about the limits of technology and the ‘work-anywhere approach’,” Hopkins said. “2020 has advanced work flexibility exponentially. This should substantially improve access to flexible working for generations to come. Insurance is a great example of where improvements in technology could result in the industry being fully flexible and opening up rural and national employment opportunities.”
While Hopkins acknowledged the challenge of predicting what could happen in the industry given the still-volatile landscape, he suggested that 2021 may be “the start of a graduated and multilayered return to ‘normal’ for some sectors of aviation” – one of the industries hit especially hard by COVID-19. During this period, Hopkins expects aviation insurers to “respond proactively to support this vital industry”.
But despite movements towards stability, there is still much the insurance law industry will have to be ready to adapt to, according to Clyde & Co’s Lyons, who stressed the importance of keeping on top of key changes to be able to meet clients’ needs.
“We expect the insurance industry to continue to face change at a rapid pace with a hardening market and significant regulatory and legislative reform ahead,” she said. “We also expect to see continued pandemic-related claims, particularly in relation to business interruption, employment, claims arising from the health and aged care sector, and potential class actions and inquiries, which we have already started to see.”
Meanwhile, Wood highlighted the two-speed financial recovery process, which he said could consolidate the insurance market further in the next 12 to 24 months.
“Insurance lawyers will need to understand the impact of this new landscape on clients and anticipate – and deliver to – the new requirements,” he said. “The continuing increase in regulation and compliance requirements for the insurance sector will have broader consequences.”
Insurance law practices are expected to sustain a strong growth trend going forward, and in this report Australasian Lawyer and Insurance Business celebrate for the first time ever 20 firms and 21 lawyers who, with their incredible work in this space over the past year, have set a high bar for those who will come after. Find out who have made this inaugural list of 5-Star Insurance Law Firms and Lawyers in Australia.
Australasian Lawyer and Insurance Business teamed up to source feedback from leaders in the insurance industry over a period of 15 weeks. The research team began by conducting a survey with a wide range of insurance companies to determine what insurers value in the law firms they collaborate with. The in-depth information provided by participant insurers regarding their needs enabled the research team to assign weighted values for the services offered by law firms to their insurance-law clients.
The research team also spoke to hundreds of insurance professionals across the region by phone. During these interviews, the professionals were asked to rate the insurance law firms with whom they had worked over the past 12 months. The research team also sought out the opinions of insurance lawyers themselves, enquiring about their recommendations of law firms other than the ones they were currently working with.
At the end of the research period, the firms and lawyers that received the highest rankings in terms of work quality, specialist expertise and client service quality were declared 5-Star Excellence Awardees in the field of insurance law.