Skip to main content

Understanding the New Zealand D&O Insurance Market in 2021

Since the beginning of 2019, the directors and officers (D&O) liability insurance market in New Zealand has been inconsistent for some and consistently difficult for others. NZX listed companies and some large private organisations have experienced significant premium increases at renewal, in some cases exceeding 100%; however, smaller companies and non-profit organisations have generally experienced small or no increases.

The experience with the current D&O market largely differs according to general company characteristics as follows:

  • Privately owned NZ operated companies: The market is still fairly competitive.
  • NZX listed companies: Although reasonably strong capacity is available, insurers have started to raise premiums to reflect the changing legal and regulatory environment in New Zealand. NZX clients experienced D&O premium increase of 30% to 50% in 2020, on average.
  • Dual listed companies with US or ASX investor exposure: This market has been particularly challenging, largely due to remedial actions undertaken by insurers in Australia and globally as they adjust and rebalance previously poor performing D&O portfolios. This is linked to the increase in class action activities and costs. Some New Zealand clients have experienced premium increases over 250% throughout 2020 and into 2021. Some increases have been even larger where the risk is perceived to have been underrated in previous renewal periods.

Unlike Australia, which has experienced a more consistently challenging market, insurers in New Zealand have continued to provide favourable terms for lower risk and smaller entities that do not absorb large amounts of capacity. Consequently, their treatment has been generally stable since 2019.

Non-listed companies have not experienced the same level of premium and self-insured retention increases as publicly listed ones. Still, some have been affected by increases due to the industries they operate in or to specific events such as cyber-attacks, concerns about a company’s culture, or unfavourable media attention.

Regardless of the type of company, insurers generally are underwriting with stricter guidelines and exercising higher scrutiny on all risks. There has been a shift in the type of information insurers require to assess an organisation’s potential D&O exposure. Company culture is now equally as important as financial results in many insurers’ eyes. A company’s environmental, social, and governance (ESG) commitments and aspects — already under scrutiny by investors — are becoming an increased area of focus during the underwriting process.

Law Commission’s Inquiry into Class Actions and Litigation Funding 

In March 2021, Marsh New Zealand issued a formal submission in response to the Te Aka Matua o te Ture - Law Commission’s Inquiry into Class Actions and Litigation Funding. The primary purpose of the submission was to advocate on behalf of, corporate New Zealand and the insurance industry for a regime and regulation framework that allows for a fair and equitable system to balance the interests of the class plaintiffs against the potential implications on the availability and affordability of D&O insurance for New Zealand businesses and their boards. 

Marsh supports the need to develop a class action regime, and regulation of litigation funders. We believe that this could improve on the current method, which relies on the courts making decisions on a case-by-case basis.  There is no obvious downside to having regulation of litigation funders.  

The Marsh submission draws upon insights and learnings from the Australian D&O insurance market. This is helpful by enabling New Zealand take the lessons learned from Australia and ensure the design of the class action regime and litigation funding regulation is fit for purpose from the outset.

We demonstrate in our submission the correlative impact between class actions and litigation funding and the availability and pricing of D&O insurance - both in New Zealand and Australia.

In addition to D&O, class actions can often involve an insurance response under a professional indemnity policy, and therefore the implications of a poorly designed class action regime and regulation could negatively impact on any New Zealand entity, from small enterprises to government.

To read Marsh’s full submission to the Law Commission, please download a copy here. 

If you have any questions in relation to this article, our submission, or D&O insurance, please contact your Marsh adviser or contact us here.

Download PDF