Sydney, 16 June 2020
Marsh, the world’s leading insurance broker and risk adviser, has warned that corporate Australia could face a future in which directors and officers (D&O) insurance is “no longer available, affordable or provide the coverage expected or required” in its submission to the to the Parliamentary Joint Committee on Corporations and Financial Services’ Litigation funding and the regulation of the class action industry Inquiry.
Marsh has raised its concerns that the massive premium increases and restrictions in cover, fuelled by securities class actions funded by litigation funders, will suffocate entrepreneurial, investment and growth-focused decisions in Australia as boards become increasingly risk averse.
In its submission, Marsh pointed our that company directors in Australia are now potentially exposed to liability under more than 600 pieces of legislation with the country now the most likely jurisdiction, outside the US, in which a corporation could face significant securities class actions.
In light of difficult market conditions, coverage restrictions, and the uncertainties associated with COVID-19 related losses and claims, Marsh’s submission noted that some directors have already chosen to resign from their positions. It pointed out that if companies cannot 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.
Marsh data for the first quarter of 2020 showed the average increase for D&O insurance was 225%, with some premiums rising by as much as 400% to 500% for the biggest ASX listed companies. The effects of these funded securities class actions have rippled through all D&O policies, including for small and medium-sized business and not-for-profit organisations. Marsh expects the Australian D&O insurance market to continue hardening over the next 12 to 18 months
Commenting on the submission, Craig Claughton, Head of Marsh’s Financial and Professional Practice (FINPRO), Pacific, said: “Left unchecked, the combination of class action lawsuits, litigation funding, and massive D&O premium increases could have serious implications for the Australian economy. Without significant reform, such as address the continuous disclosure regime, corporate Australia may not be able to attract or retain the qualified directors it needs.”
Marsh Risk is a business of Marsh (NYSE: MRSH), a global leader in risk, reinsurance and capital, people and investments, and management consulting, advising clients in 130 countries. With annual revenue of $27 billion and more than 95,000 colleagues, Marsh helps build the confidence to thrive through the power of perspective. For more information, visit marsh.com, or follow us on LinkedIn and X.
