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Ben Robinson, Placement Manager - Professional and Executive Risks, shares key takeaways from Q4 as well as considerations for the new quarter.
In comparison to the last three to four years, those purchasing D&O insurance now have many more options. While the wider D&O market anticipated a more gradual rate drop throughout Q3 and Q4 after a continued period of growth, clients are now experiencing ‘as expiry’ or discounted renewal terms as the London market pushes for new business. This overall change is marked by lower increases in pricing and deductibles from many providers as the D&O market becomes more sustainable and returns to profitability.
The abrupt shift being experienced in the London market has resulted in Lloyds and London’s company insurers once again becoming a competitive option for Australian clients. We’re also seeing greater appetite from insurers in sectors that may previously have been viewed unfavourably. Such sectors include, but are not limited to:
In May 2020, an amendment to the Corporations Act meant companies and their directors could only be sued for breaching disclosure laws when they acted with “knowledge, recklessness or negligence”. The amendment was made in response to the heightened risk of shareholder class actions at the onset of the COVID-19 pandemic, and while initially proposed for a period of 6-months only, it became permanent in August 2021.
After a shift in parliamentary power to Labor, Attorney General, Mark Dreyfus made it clear that Labor did not support the Coalition’s amendments to the Corporations Act, and that the new Government would consider reverting to the Act’s former wording which increased the rights of shareholders to take legal action against directors.
With the possibility of reverting back to a strict-liability approach, the impact on the number of class-action claims brought against companies, and the potential impact on D&O premiums (which have just begun to show signs of softening) remain unclear. We will keep you abreast of this issue as it evolves.
Globally, we’re witnessing the most threatening cyber environment to date, with a record number of ransomware attacks and increasingly sophisticated malware with some of the highest levels of nation-state involvement. In response, strict information security governance standards, tightening legal and regulatory requirements, and a flurry of cyber event-driven shareholder derivative and securities class action litigation have made cyber resilience a critical priority for corporate Australia.
Global underwriting strategies continue to face fierce challenges, grappling with more widespread pain points and the control frameworks that reduce or eliminate these threats. With the ever-evolving sophistication of ransomware attacks, clients can expect greater scrutiny of these risks and strategies to mitigate them in Q1 FY23.
Most Australian cyber insurance markets have reduced their capacity by 50% (on average), amid heightened attention on client responsibility for cyber risk management. Clients will need to show evidence of security controls before insurers will consider providing coverage, for renewals and new policies alike. Without these strict controls, contingency plans, and a detailed submission to the insurance market, organisations will struggle to maintain coverage. Unfortunately, cyber insurance for legal services, manufacturing, wholesale, and distribution sectors continues to be particularly difficult to secure. Meanwhile, cyber insurance capacity in the London and Singapore markets has become an expensive but essential commodity that will only be provided to organisations with outstanding security posture and awareness.
D&Os are feeling the weight of their cyber security responsibilities more than ever, following the recent landmark Federal Court decision in Australian Securities and Investments Commission v RI Advice Group Pty Ltd, which established that failing to manage cyber risks is a breach of financial services. What does the Australian Securities and Investments Commission v RI Advice Group Pty Ltd decision mean for corporate Australia? Be sure to catch our summary here.
The general PI insurance market continues to be challenging for most industries, with the exit of several insurers in this class over the last few years and a major international capacity holder exiting in the past 6 months. For the most part, remaining insurers are not actively pursuing new business opportunities, however there is more appetite in London for Australian clients with larger risks. It remains difficult for London to compete with local insurers, and there is still a feeling in London that clients are looking to simply benchmark. We expect improvements in late FY23 as insureds implement more risk mitigation strategies and rely less on insurance as a direct risk transfer strategy.
Sectors and professions such as recruitment, registered training organisations, fitness instructors, HR consultants, speech therapy services, and project managers (excluding building and construction) have long been prized clients by insurers. Architects, equity fund managers, and family offices / wholesale space remains competitive, despite limited local capacity.
Insurance capacity for large accounting firms, financial planners, lawyers, valuers, mortgage brokers, and construction professionals continues to prove challenging on the supply front. ASIC’s recent decision to suspend a retail fund manager’s Australian financial services (AFS) license for failing to maintain adequate insurance serves as a critical reminder of pricing and capacity challenges, onerous policy terms and conditions should capacity be sought, and the importance of allowing adequate lead time before any renewal. To find out more, be sure to watch our recent deep dive into the PI market with Insurance Business here.
