Social
Rates amongst the D&O market have continued on a downwards trajectory, following a trend reversal in mid-2022. This was driven primarily by an increase in insurer appetite and capacity out of London, which forced Australian markets to follow suit. After a five-year period of hardening market rates, insurers are now offering renewal terms at “expiring” or reduced rates to defend their market share from new entrants.
Despite rates softening, the D&O market has seen several emerging claim trends emerge. One of the most notable trends is the increasing focus on cyber risk. As companies become more reliant on technology, they also become more vulnerable to cyber-attacks. While directors are not expected to know the technical ins and outs of their systems, they must know how to govern privacy and cyber-security risks. For more information, be sure to review our Cyber Capability Statement.
As economic conditions worsen, companies and their directors face the potential of insolvency. Depending on the circumstances which give rise to a company’s insolvency, a director may be held personally liable for the debts incurred. As a result, insurers have taken a cautious approach to industries with greater exposer to raw materials and inflationary pressures (such as construction and manufacturing), with many applying insolvency exclusions until they have satisfactorily reviewed the company financials.
EPL continues to produce the highest frequency of losses amongst the Management Liability product, contributing to approximately 40% of all claims (Dual, 2023). Unlawful discrimination, unfair dismissal, bullying and harassment have been a consistent source of claims for several years but recently, we have seen new wave of claims emerging.
COVID-19 related litigation arising from vaccine mandates along with socially driven movements such as #MeToo, equity and inclusion initiatives, racial equity and pay equity have all begun to generate claims activity.
Social inflation arising from a series of decisions in favour of plaintiffs and larger compensatory jury awards have also had an impact on claims and therefore premiums. Social inflation can be driven by a variety of factors, including changes in the legal landscape, shifts in public attitudes towards corporations and insurance companies, and the rise of litigation funding and advertising by plaintiff attorneys. In turn, insurers are adjusting their underwriting practices and pricing to maintain the sustainability of their products. Various factors, including the industry, the loss history, and the location of employees will determine the magnitude of the rate increases.
Whilst it is now illegal for an insurer to indemnify an insured for a fine or penalty for breaching a work health and safety (WHS) obligation in New South Wales, Victoria or Western Australia, Statutory Liability premiums continue to trend upwards.
This is largely because it is still legal for insurers to indemnify the insured for their legal defence costs. As a result, we are seeing clients choose to defend claims to a greater degree, as they no longer have an insurance policy to cover the subsequent fine or penalty.
Beyond WHS obligations, there are 5,000 different legislations governing corporate Australia. The risks are abundant, and we are seeing a rise in breaches of the Privacy Act arising from cyber-related incidents, indicating a trend may be emerging.
Rates for Commercial Crime policies remained stable throughout 2022 and into 2023. As we’ve transitioned into a digital economy, claims arising from cyber-related fraud such as Social Engineering Fraud have overtaken the more traditional means of stealing such as robbery and forgery.
In 2022, there was a noticeable increase in the frequency of cryptocurrency exclusions in Commercial Crime policies. While most Commercial Crime policies traditionally defined "money" as currency issued by a government, many insurers have now added specific exclusions for cryptocurrencies and non-fungible tokens (NFTs), making it clear that these assets are not covered under their policies.
When economic conditions are poor, such as during a recession or high unemployment, crime rates tend to increase. As fears of a recession continue to loom large, insurer profitability may be impacted in 2023 if rates are not adjusted to reflect the increased risk exposures.
To find out how we can help you manage your risks, feel free to reach out at any time.
Senior Client Executive – Professional and Executive Risks
