Market update – Directors’ & Officers’ Liability

Local losses have pushed pricing upward, as has the uncertainty of COVID-19. There has been a surge in powers of regulators and more onerous obligations for directors and companies to comply to regulation. There is continuing narrowing of cover, reduced capacity arising from diminished appetite for the class (because of its lack of profitability) and significant price increases.

The Australian D&O market is estimated at $650-$750m in gross written premium. Just 5 years ago it was $250m. For the 2016 to 2018 period D&O claim reserves are estimated at $1.8bn. Following COVID-19 and losses of 2019 (banking inquiry in particular) the loss ratio is suggested to be ~$800m+ for the 2019 year alone. It remains then that rate increases are likely.

Insurers have over the past 3 years continued to narrow the breadth of cover under D&O policies for Shareholder Class Actions (SCAs). There are limited insurers who will cover SCA claims brought against the company (as distinct from its directors and officers). If they do, they will impose a significant excess and the premium charged for the cover is extreme.

There is some good news. Reforms by the Morrison Government to regulations for litigation funders, a Parliamentary Inquiry into class actions, easing disclosure obligations for directors of publicly traded companies and the Federal Court’s decision in Myer, should help attract insurers back into the market.

Any policyholder with any past claims history under a D&O, Statutory Liability or Employment Practices Liability are likely to see further significant increases in 2020 and beyond (between 30 and 100% on premium).

Please refer to our articles: