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“The D&O market will continue to harden, with increasing premiums and reduced capacity for the foreseeable future. These developments may cause companies to change their D&O insurance buying behaviour...”

“This has enabled an enormous number of claims to be raised, and settled, causing significant losses in the Australian D&O market,” RIMS Australasia President Kevin Bates tells Insurance News. “The quantum of losses has exceeded the total premium pool by more than 600%, which is clearly not sustainable.” So far, no securities class action has gone to final judgement in a court, with all cases either settled or discontinued. “Having to respond to these class actions cannot be in the best interests of the shareholders, given the financial and reputational impact on the company,” Mr Bates says. “RIMS will be working with the insurance carriers and law firms representing those insurers to facilitate some clear thinking as to what can be done to eliminate those securities class actions that are clearly not in the best interests of the shareholders.” Potential areas of investigation include judicial intervention to eliminate vexatious litigation and unconscionable conduct. A legal case could also be pursued, rather than settled, to air arguments and allow a precedent to be set. Treasury Wine Estates pursued a typical path with its settlement, saying it was a commercial decision, in the best interests of shareholders, which allowed the group to stay focused on its strategy without the distraction and expense of the legal proceeding. XL Catlin’s Mr McKay says the average settlement for class actions has been about $50 million. He says some insurers have stopped offering side-C cover on a primary, or lower-excess-layer basis, such as less than the average settlement level, but otherwise there has been little change to the cover. 66

“At this point, there is no indication that availability of side-C cover will completely disappear, but it will be considerably more expensive and some companies may not obtain the limits they prefer. “The D&O market will continue to harden, with increasing premiums and reduced capacity for the foreseeable future. “These developments may cause companies to change their D&O insurance buying behaviour, such as adopting significant retentions for side-C claims or not buying side-C coverage at all.” Maurice Blackburn spokesman Cameron Scott says a very small percentage of Australian Securities Exchangelisted companies become involved in class actions – about 0.2% in any given year, based on the past five years. He says class actions are a contributor to improved governance. “The insurance industry plays an important role in the class actions space,” he says. “Insurers benefit greatly from their regular participation in a range of cases they make recoveries from, and they also have an impact in demanding that corporate clients adhere to higher governance standards of conduct and disclosure, which benefits everyone.” Nevertheless, insurance executives including Allianz Global Corporate & Specialty Pacific Chief Executive Willem van Wyk say problems relating to D&O side-C cover are a significant issue. “There are more law firms coming in, there are more funders coming in, and the trend is definitely still on the up,” Mr van Wyk told the RIMS forum. “I do think the whole space will change. “Larger companies that buy side C will take much larger deductibles and so on. Otherwise the cover may just not be * available in the future.”

insuranceNEWS

October/November 2017

Profile for Insurance News (the magazine)

OCT/NOV 2017 - Insurance News (the magazine)  

As the pace of change in the Australian insurance industry accelerates, IAG is making some big, bold and swift steps to build a new kind of...

OCT/NOV 2017 - Insurance News (the magazine)  

As the pace of change in the Australian insurance industry accelerates, IAG is making some big, bold and swift steps to build a new kind of...