00:00 — Sometimes deciding which clients to say no to is just as important as deciding which ones to accept.

00:06 — Just because insurance is cheap at the moment doesn't mean the risk management needs to go out the window at the same time. [Music]

00:13 — Hello and welcome to Insurance Business TV for our third Professional Risks Power Panel of 2026. We're going to look at what the insurance market's doing right now, including AI and legal costs impacting the clients of professional risks brokers. Our experts are back.

00:29 — Nick Bezwick is Head of Professional Indemnity in Australia and New Zealand for New Line Australia Insurance. And Austin Rosierre is Principal Risk Adviser for OmniShore.

00:41 — Welcome back to you both. Thanks a lot for coming along. Since we spoke in May, AI has moved from an industry gray area towards something some insurers are starting to grapple with more directly in their policy wordings. Um, how are you seeing this play out in practice? Uh, Nick, what are you seeing?

00:59 — Um, at the moment we're not seeing a widespread introduction of AI-related exclusions into PI policies. However, I'm aware that this may be starting to occur in some overseas markets. Um, if this eventuates, it may also create an opportunity for new products or new approaches to the issue.

01:16 — So it's not all negative from that point of view.

01:20 — Um, issues such as silent AI has started to become a little more topical overseas, but from my perspective, AI still remains sort of part and parcel of core PI exposures under existing policies.

01:35 — Um, now the technology may be evolving, but the risk and fundamental exposures remain the same in my view. Um, so it's more about, in my view, it's more about how insureds sort of manage the introduction of AI-related systems and tools, and they've got appropriate guardrails in place, um, such as a human in control to verify professional advice is appropriate. Um, for now, it seems that insurers locally, at least, are prepared to keep a watching brief on the issue.

02:07 — How about you, Austin? Is it still a watching brief from what you can see?

02:11 — Yeah. And I mean, look, obviously Nick being on the underwriting side, it's reassuring to hear that that's how he's viewing it at the moment because I think we as brokers sit with a similar sort of mental framework. And I think we try to start our conversations with, "Are you using AI internally?" And I think in many ways people are likening this to, "Are you using perhaps Excel 25-odd years ago?" Or are you using whatever software you may be using to enable your business? Or are you a business that is inherently using or providing AI, sorry, as its core business offering?

02:43 — And I think depending upon those two answers, it's going to be different. I would argue that almost every business in the country right now is using AI internally in some way, shape, or form, but there are far fewer that are, I guess, selling and providing that AI. Um, and again, for those that probably fall more into column B, those who are actually developing AI, um, they're asking how they're doing that, no different to any other IT proposal form or no different to any other professional services form. How do you actually provide? What does the safety, what does the security look like? Um, and I think again, as Nick said, what are the guardrails like?

03:26 — Um, and I think the key concern is, is AI replacing professional judgment? Is it actually making decisions, or is there still a human in the process somewhere? Um, and for the most part, I think there still has to be, not even from a regulatory standpoint, just because even though AI is moving quickly, it's still probably not at a point to actually replace human judgment, human discernment, human decision-making for most use cases.

03:50 — Let's look at that regulatory viewpoint a little more just with you, Austin, because I mean APRA is pushing insurers on AI governance and explainability, and there's a separate Privacy Act deadline in December which is forcing firms to disclose automated decision-making that significantly impacts customers. Is you seeing any of that regulatory impact yet, or is it still not quite on the scene?

04:17 — Yeah, I would say yes and no. I mean, as an insurance brokerage firsthand, we're thinking about what AI we use, how we use it, and what it has access to.

04:27 — And that's something that we are getting a lot of guidance from our industry bodies on, from even our MSPs as to what they know the various guardrails are and the like. Um, and so that's something that we're really mindful of and will continue to be as this space develops and progresses.

04:41 — Um, I would say in terms of that automated decision-making process, absolutely I can see how that might come into things for a really large direct-market personal-lines insurer who might have hundreds of claims or hundreds of policy applications a day. And I could really see AI being integrated into that process that is a bit more binary.

05:05 — Um, but certainly in the day-to-day that we spend, which is generally complex, nuanced commercial businesses, it's not something where we believe AI is capable of replicating the role of human in that process. Um, and we're not seeing it be used in that way either within ourselves or within our insurer partners that we deal with on a day-to-day basis.

05:23 — So I think what will probably be a challenge from an enforceability standpoint—and obviously this is true for both APRA and the Privacy Act, but probably more broadly—is often a mismatch between AI implementation and AI literacy or understanding.

05:39 — Um, so even in discussing with some of our clients who operate in the private equity space, they said a few years ago everyone started badging AI onto their products because they felt like it increased the value multiple. Now, they're obviously mindful of what that looks like and having to be really discerning in whether something actually is AI or if it's just being badged as AI.

06:00 — Um, I think that same level of discernment is probably unlikely to be across all businesses.

06:07 — And you might find businesses that are either column A, unknowingly implementing AI that might be making decisions more so than they think it to be, or column B, um, they might be implementing that they think are making these decisions and it is not. And so I think it'll be interesting to see how the regulator deals with quite a large knowledge gap around something that really is quite technically complex, um, as that unravels over time.

06:32 — Yeah, we'll have to wait and see. Let's change tack and look at legal costs. Um, there's often a lot of attention on the cost of funding and litigation, particularly at the top end of town, but for your theme customers, I mean, how is this broad issue of legal costs impacting professional risks at the moment? Um, Nick, let's start with you.

06:55 — Um, thanks, Denny. Inflation across all areas of the economy can put pressure on businesses, and I think SMEs find that particularly difficult to manage at times. Um, as far as increasing legal costs are concerned, it's inevitable that they'll increase the cost of claims handling, and that can play out in a number of ways, particularly around how the limit of the policy is structured.

07:12 — So limits are inclusive of defense costs. Um, the policy limit can be eroded more quickly with increasing claims costs and defense costs. Conversely, where the limits are exclusive of costs, that increases the cost to manage the claim on the insurer, and that will inevitably flow through to pricing at some stage.

07:40 — Um, as the cost of defending matters and claims increases, um, as any market or product, the increasing in cost will put pressure on pricing, and that may manifest itself in a way that exacerbates rate increases as we move from a soft market into a hard market at some point.

08:02 — Great. Thanks, Nick. And Austin, what about you? What are you seeing?

08:06 — Yeah, I mean, look, obviously rising costs full stop are a concern for everyone. Um, and I think we're really fortunate to live in a country that has a fair and active judicial system. And I know that's something that can't be said for every country in the world. And that's something that we shouldn't take for granted for a minute.

08:22 — But there's definitely some mind towards how increasing costs actually allow fair access to our legal system. Um, and so for many of our clients, they're obviously routinely frustrated that something that might be a non-genuine complaint or claim against them, um, because we operate in a legal system that gives everyone a fair trial and fair access to a decision, they might have to pay in excess or even contribute a significant amount towards defending a matter that they might feel to be frivolous or non-genuine.

08:59 — Um, but I think where we're really seeing the challenge is, um, if you have a complainant, they may not have the resources to defend against an insurer.

09:07 — Say if you have an insurance policy in place with a million-dollar limit behind you, it's obviously very different to most private complainants. Um, or where we're seeing a real challenge for some of our smaller and even quite decent-sized businesses, they're obviously signing contracts on a routine basis, whether it's for new AI software or whether it's with a new client.

09:23 — Um, and they may not be able to afford the advice required to actually get due legal diligence done on every single contract, and even to look at an extension under PI policies and public liability policies. That's quite common, is contractual indemnity, whereby coverage might be extended to a contract where you've agreed to a level of responsibility that's greater than what you would otherwise have had at law.

09:46 — Um, some of these clauses are conditional upon obtaining legal advice and legal feedback around the contracts before the coverage can actually apply. And that's something that clients may not have access to.

10:03 — Um, and should things really go belly up, they may well not have the individual resources to pursue against potentially a much larger, say, global multinational business or organization where they just do not have the resources to pursue that themselves.

10:20 — And then I guess to kind of circle back to litigation funding in the top end of town, I was at a Berkshire Hathaway presentation a couple of weeks ago, and something that they really flagged as an area to watch is derivative class actions.

10:37 — Um, I've had a client that's had such a matter. Quite unusual. Um, and they are looking at these as a growing area of concern because it can generally be a bit more economic to bring the first instance than a class action.

10:45 — Um, there was a really interesting test case last year called the SkyCity case. Um, and an interesting, I guess, outcome from that was that even though there was quite possibly a valid claim being brought against the directors of SkyCity, um, it was ultimately not allowed to proceed by the court on the basis that the principal purpose of the derivative—the one person bringing the class action—was to obtain a benefit from the litigation funder.

11:14 — A litigation funder was basically paying this person to bring the class action, um, as opposed to acting in the company's best interest.

11:23 — In effect, they said, "You're getting paid $200,000, $300,000, $400,000, whatever $100,000 amount he was being paid." Um, and in doing so, your actual financial benefit outside of that would have been minimal. So, they said you're not bringing it in good faith.

11:38 — And so, it's an interesting test case, um, but certainly one where it's interesting to watch how litigation funders respond in that area accordingly.

11:50 — Well, let's finish our session with a tip for brokers. Um, right now most rates are still pretty soft and even easing if you're a claims-free firm, but the risk landscape is always pretty complex. At renewal time, what would you say is a smart move for brokers and where could the trap be there? Austin, let's kick off with you again.

12:12 — Yeah, I mean, look, obviously as a broker, this is a very real concern and something that we're sharing with all of our clients. Um, most clients are aware of the fact that we are in a soft insurance market at the moment. Um, and what that means for us is obviously we are acting in our clients' best interest.

12:27 — We're going to push on rate while we can, but we're also suggesting that clients engage higher limits or broader coverages in the market whilst they can.

12:36 — And we're seeing this, and I'm sure Nick can speak to some of the outlandish requests he's probably received from brokers and some of the crazy pricing that's come across his desk over the last couple of years.

12:43 — But the reality is insurers are very keen to hold on to business at the moment. And so they're willing to give more than they typically would be, particularly coming out of a very hard market sort of three to five years ago.

12:51 — Um, and so we're just advising our clients that we make the most of that while we can. Um, I mean, obviously we all wish we had an insurance crystal ball, and if anyone did, they'd probably make themselves a lot of money.

13:07 — Um, we don't. I suspect that we're probably nearing the tail end of the soft market, and perhaps if 12 months from now, I don't necessarily know if we'll be in the same position.

13:19 — Um, but that's certainly something I would be advising all brokers: while they can, act and do everything you can to secure your client's best interest.

13:26 — In terms of a trap, obviously, if a broker is not doing that, the higher likelihood is another broker will do that for their client and get them a better outcome.

13:34 — Um, but also something I'm really mindful of is premium becoming too low, impacting premium pool, and then you have perhaps a non-renewal because not enough premiums being collected for a claim, or a much larger than perhaps necessary increase in rate.

13:52 — So, it's a real delicate balancing act, um, that brokers and clients alike need to be mindful of and really just work together to have a strategy as to what they want to achieve and how they're going to achieve it. Thanks, Austin. And Nick, how about you?

14:04 — Um, what do you see as a smart move for brokers and what's a potential trap at the renewals?

14:10 — Well, I certainly hope Austin's right about us coming to the tail end of the soft market. I think that would be most welcome. Um, I think brokers need to ensure that they're across the detail of their clients' business operations and activities.

14:25 — I think that that's as true in a soft market as maybe in a hard market. That kind of doesn't change. So, for example, brokers need to be across how their clients actively manage their risk.

14:33 — So, what formal risk management practices they have in place, um, how they manage their contracts and perhaps seek to limit their liability where they can, or consider consequential loss on certain project types that may be high risk.

14:48 — Um, how they select their subcontractors and monitor their subcontractor activities to ensure that they're complying with the insured's own standards and procedures.

15:01 — Um, and how they evaluate new clients or projects. So, what go/no-go processes are in place? Um, sometimes deciding which clients to say no to is just as important as deciding which ones to accept.

15:18 — So, in terms of the trap, I think the trap is where a broker may not be able to clearly articulate the significance of those sorts of issues to their clients and the importance of a client having those processes in place to their underwriters.

15:26 — If there's a mismatch in those expectations or messages, um, then that I think will lead to problems for clients and their insurers.

15:43 — Um, and I think particularly, you know, when we consider moving into a harder market at some stage—I'm not saying we're there yet, but when that occurs—I think that's where brokers really can distinguish themselves and also the quality of their clients from other submissions underwriters will see on the desk at that time.

16:05 — Just because insurance is cheap at the moment doesn't mean the risk management needs to go out the window at the same time.

16:12 — [Clears throat]

16:13 — Very true. Well, gentlemen, thanks very much again, Nick Bezwick and Austin Rosier, and thank you for watching Insurance Business TV. Bye for now.