Broking giant Aon, which describes the directors’ and officers’ (D&O) market in Australia as “struggling,” is happy with the government’s pronouncements regarding continuous disclosure and regulation of litigation funders.
“We are heartened to see the government’s favourable response to the business community’s lobbying for better control of securities class action activity through this series of announcements,” stated financial services group director Eden Fletcher. “This has to be seen as a positive development for the increasingly challenged D&O market.”
Aon noted how the market has been subject to ongoing profitability pressure, which it said has substantially tempered insurer appetite for participation on listed companies’ D&O programmes, in turn reducing the market’s overall size and driving sharp increases in both premiums and deductibles.
In addition, the top brokerage cited the active securities class action environment and resultant settlements as culprits for Australia being viewed as the world’s most difficult market to underwrite D&O insurance. That is why Aon considers the move to regulate litigation funders under the Corporations Act as proof that the government is seeking to address the adverse impact of the country’s challenging securities class action environment.
A temporary six-month amendment to the continuous disclosure regime has also been announced, in that companies and their officers will only be liable for continuous disclosure breaches if there is knowledge, recklessness, or negligence with respect to updates on price-sensitive information.
“In the short term,” said Fletcher, “it provides assurances to insurers around the potential for a spike in claims related to COVID-19. More importantly, in the mid to long term, it opens the door for further discussions about future law reform to Australia’s continuous disclosure regime.
“For our part, we intend to advocate for our clients to help insurers better understand the impact of these developments to drive a more sustainable market for both our clients and insurers.”
Aon Australia chief executive James Baum, meanwhile, believes the government should be congratulated for tackling the issues being faced by D&O insurers and clients.
Baum declared: “While there may be some limitations as to the practical import of the changes to the continuous disclosure regime, these announcements are a positive development that will help both to relieve some of the pressure on companies amid COVID, and to open up some capacity and optimism in the insurance market.”