The crazy litigious world of financial lines insurance

The crazy litigious world of financial lines insurance | Insurance Business Australia

The crazy litigious world of financial lines insurance

Andrew McKenzie (pictured) has just stepped into a new position as the head of financial lines, northern region, for BMS Group in Australia. His job description includes covering directors and officers insurance, professional indemnity and financial institutions.

 “So basically, if it’s white collar and you give advice, that’s the area we are in,” said McKenzie.

He believes that Australia is the second most litigious corporate and professional environment in the world after the United States.

Perhaps naively, I’m very surprised. McKenzie is surprised at my surprise.

“You’re going, ‘Wow! Gosh!’ I didn’t realize it was that big but yes, there’s a whole industry of lawyers and plaintiff law firms and litigation funders who make a living out of suing people and boards and companies,” said McKenzie.

It’s a high-pressure job – but things could have been so different for McKenzie. He did try to become an accountant but, in the end, followed his dad’s footsteps into the insurance industry.

Read more: BMS expands Australian team with two new appointments

Brisbane-based McKenzie steps into his new position at BMS after eight years at Marsh and 19 years at Aon.

“I’ve lived the journey of the litigation landscape changing in Australia. I’ve lived that from the insurance perspective. I’ve been there for 27 years. I’ve made a career off it,” he said.

The insurance McKenzie offers pays for the costs of legal battles and, if they come, the settlements and payouts.

Another way of looking at it is by taking a look at the Federal Court of Australia’s website. There are more than 120 active class action lawsuits.

“There’s some very important risk and insurance categories in financial and professional lines. You’ve got directors and officers insurance, so looking after the boards for corporate Australia and as we know from those class actions the boards always get sued,” he said.

Apart from class actions there are all the other legal cases potentially covered by insurance like McKenzie’s financial lines that you don’t hear about in mainstream news.

He says there are a lot of those.

“For every one that is there in the public domain, there’s probably three that aren’t,” he said.

The types of risks involved in his field are multiple.

“Absolutely – and that can be against boards and directors of listed companies, that can be against law firms and accounting firms and property firms from a professional indemnity perspective. That can be in respect to cyber and a ransomware attack that shut down your systems,” said McKenzie.

The insurance he offers can protect board members and partners right down to the mail person.

“We’re protecting them as individuals and also the entity,” said McKenzie.

It’s a very difficult field to judge risk in. McKenzie explained why.

“So it’s very specialist,” he said. “If you think about governments, legislators and regulators – they don’t even know how to regulate these people so their risks are almost unknown or hard to profile and get a handle on even to regulate on a government level. So, imagine what it looks like at a risk level, you never know who or what they’re going to get sued by next.”

McKenzie said as the world and business have become more service industry based over the past 40 years, they’ve also become more litigious and more technology dependent. As a consequence, the risk landscape to protect businesses and their people has dramatically changed.

“The need for corporations to protect their business, their people and their entire industries has heightened significantly over this time. On top of this constant risk change we have a technology evolution that adds immeasurable layers of additional cyber risk that businesses and their people are trying to address, secure and insure,” he said.

In Australia, there’s also the impact of the recent Hayne Royal Commission into misconduct in the banking, superannuation and financial services industry which had a significant effect on the risk landscape.

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“It’s easy to comprehend why risk has moved to the boardroom table and is a main agenda item for all businesses,” he said.

McKenzie’s next comment, quite appropriately, echoed the, “There are known knowns” phrase of a former US Secretary of Defense.

“So the challenges for every business are there’s always known risks and unknown unknowns or black swan events. We don’t know what they are,” he said.

McKenzie gave an example of a catastrophic event that no-one saw coming. Back in November 2019, who would ever have thought the world was on the eve of the COVID-19 pandemic that would emerge in China just a month later?

“And that happens all the time,” he said. “So cyber risk was only medium five years ago. It’s now enormous.”

He said the evolution of risk in what we do, not just in insurance, is ever changing.

“I’ll walk out there today and there’ll be something else that will change today,” he said. “We’ve seen that in life through the pandemic. What I’m doing at BMS is taking on that challenge for an emerging firm having done this for 27 years at two very big firms.”