Brokers’ commercial clients may be paying their shareholders increasingly large litigation settlements but intermediaries are finding directors & officers insurance is as profitable as ever.
These views were expressed after law firm King & Wood Mallesons published a report into the challenges facing Australian directors and boards. It found that company bosses were constantly trying to reconcile their perception of their role with what stakeholders expect of them.
The document, entitled Directions 2013: Current Issues and Challenges Facing Australian Directors and Boards, found that in 2012, there were five securities law class action settlements in Australia involving an aggregate settlement of approximately $506m.
Around three new class actions were commenced against Australian listed companies in 2012. In 2012, the average aggregate settlement reached $1,000m, compared to $150m in 2002.
The report argued: “With litigation funders typically receiving between 30 and 40% of these settlements, the friction costs associated with class actions are very substantial and encourage a further proliferation of this type of litigation.”
It added that class action has become part of the “permanent business landscape”.
Liability insurance broker, Danny Gumm, director of Parmia Insurance, told Insurance Business that Australia’s growing litigious environment was nothing compared to America, adding: “I do not see it as a short-term concern due to the vast amount of competition still available for this class of insurance in Australia.
But he conceded the greatest concern was the increasing awareness of class action.
“The potential growth through number of applications [for class actions], as well as increasing costs, will have significant impact on the cost of these insurances going forward,” he explained.
John Elliott, CEO of Elliot Insurance Services said increasing numbders class actions in Australia had not yet filtered through into rate rises.
“I don’t think D&O rates have increased too much more than other lines. Reinsurance costs have gone up for insurers and this has resulted in increases in the majority of lines. We are actually seeing more companies buying D&O insurance. Some are starting to see the need and value of D&O particularly because of the recent harmonisation of legislation, " he said. "Pricing is quite reasonable.”
McLardy McShane director, Kevin Tehan explained rates had risen as a result of insurers obtaining updated underwriter information and using it to apply "moderate”rate rate rises.
“The market however is still very aggressive with all insurers and endless underwriting agencies having a product for this class of risk,” he added.
Although brokers are uncertain if class action has directly impacted rates, Robert Cooper, director of Cooper Professional Risks, called for greater examination of such litigation.
“We do need to look behind some of the class actions and see what the litigation is about. They do tend to be disgruntled shareholders holding the boards of directors to account for decisions that have caused them a financial loss."
"However, not all those matters are covered by D&O insurance.”