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Press release

Corporate Australia exposed to a D&O market perfect storm: greater risk, higher premiums, lesser coverage and lower limits

14 February 2020

Marsh warns that corporate Australia could face a future in which D&O cover is no longer available or affordable. Historical under-pricing of D&O insurance, combined with the advent of class actions, is leading to a rapid hardening of the Australian D&O market.  

According to Marsh’s data, over the first three quarters of 2019 D&O premiums have risen 75% on average, on top of an 88% average increase in 2018.  The increase represents a range of between 30-40% and a staggering 600%, and there are no signs of these increases slowing.

Craig Claughton, Head of the Financial and Professional Services Practice (FINPRO) at Marsh, said: “Over the last seven years, premiums have risen on average 250% and we do not see any signs of these increases slowing.  In fact, some D&O programs now cover less than they used to, at greater cost.”

With the shift in community expectations of directors’ duties, company director roles are now subject to growing general-public mistrust, heightened regulatory and media scrutiny, and increasing personal liability exposure. 

Marsh has found that an Australian director is now potentially exposed to over 600 pieces of legislation. Australia has now become the most likely jurisdiction outside of the United States in which a corporation may face significant class action litigation. 

Mr Claughton added: “Our research has found that Australia has seen a four-fold increase in the average number of securities class action claims per year over the last 10 years and this number is still on the rise.

“The recent escalation in both the number and value of class actions is deeply concerning. We’re seeing more and more directors increasingly finding themselves responsible for the management and oversight of the business and operations at an increasingly granular level, where they could be found liable simply by virtue of their position, and regardless of their actions. 

“If companies can neither secure affordable insurance nor offer directors sufficient protection for liabilities associated with their directorships there will be a real problem for companies to be able to attract and retain qualified directors. Ultimately this is not good for anyone – neither corporate Australia, shareholders or for investment in the country.”

Over the next 12-18 months, Marsh sees a continuation of the market’s correction in Australia, as well as a hardening of the global insurance market which will not be easy to overcome. 

Mr Claughton concluded: “We expect the increase in premiums and retention and the decrease in insurer capacity and coverage to persist, so companies will need to be adaptable and amenable to managing both the risks and their expectations of costs and coverage.

“The implications of no D&O coverage are grave. Deeds of indemnity may not be able to be fulfilled in relation to any requirements to arrange insurance protections, and boards may be unable to attract and retain high-quality directors.  Whether these prospects are damning enough to inspire meaningful changes in the landscape of corporate litigation is yet to be seen.”

 

About Marsh

Marsh is the world’s leading insurance broker and risk advisor. With around 40,000 colleagues operating in more than 130 countries, Marsh serves commercial and individual clients with data-driven risk solutions and advisory services. Marsh is a business of Marsh McLennan (NYSE: MMC), the world’s leading professional services firm in the areas of risk, strategy and people. With annual revenue over $17 billion, Marsh McLennan helps clients navigate an increasingly dynamic and complex environment through four market-leading businesses: MarshGuy CarpenterMercer and Oliver Wyman. Follow Marsh on Twitter @MarshGlobalLinkedInFacebook; and YouTube, or subscribe to BRINK.

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Jason Groves

Global Head of Media Relations

Marsh Pty Ltd (ABN 86 004 651 512, AFSL 238983) (“Marsh”) arrange this insurance and is not the insurer. The Discretionary Trust Arrangement is issued by the Trustee, JLT Group Services Pty Ltd (ABN 26 004 485 214, AFSL 417964) (“JGS”). JGS is part of the Marsh group of companies. Any advice in relation to the Discretionary Trust Arrangement is provided by JLT Risk Solutions Pty Ltd (ABN 69 009 098 864, AFSL 226827) which is a related entity of Marsh. The cover provided by the Discretionary Trust Arrangement is subject to the Trustee’s discretion and/or the relevant policy terms, conditions and exclusions. This website contains general information, does not take into account your individual objectives, financial situation or needs and may not suit your personal circumstances. For full details of the terms, conditions and limitations of the covers and before making any decision about whether to acquire a product, refer to the specific policy wordings and/or Product Disclosure Statements available from JLT Risk Solutions on request. Full information can be found in the JLT Risk Solutions Financial Services Guide.”