July 2024 Market Update – Claims

The 2023/2024 financial year continued to be a year of growth and activity for Bellrock’s Claims Team. Some key statistics from this period include:

Over the last 12 months (as of 12 June 2024), the Bellrock Claims Team has advocated for our clients, resulting in settlements, and payments totalling $63.3M, apportioned respectively across the following classes:

In terms of new notifications for the financial year 2023/2024, we have seen an overall increase in claims activity broken down across the following business lines:

In terms of claims activity over the past 12 months, there continues to be a significant increase and awareness in terms of Cyber Liability Insurance (see our guide to cyber liability insurance here).

The Top three cybercrime types for business continue to be identified as being:

In keeping with this trend, in recent months, Bellrock has assisted customers with financial losses stemming from email compromises with phishing attacks being the source of intrusion.

On 22 November 2023, the Australian Government announced and released its 2023-2030 Cyber Security Strategy with the aim of making Australia a world leader in cyber security by 2030. The Cyber Security Strategy focuses on 6 ‘Cyber Shields’ to address Australia’s cyber resiliency moving forward. The Cyber Shields include:

On 22 February of 2024, the Office of the Australian Information Commissioner (OAIC) released additional reports and statistics regarding notifications received under its Notifiable Data Breaches (NDB) scheme. Pursuant to amendments to the Privacy Act 1988, there is now a requirement that organisations and agencies must notify affected individuals and the OAIC when a data breach is likely to result in series harm (physical or financial) to any person whose personal information is subject to a data breach.

The OAIC statistics reveal that notification under the NDB scheme increased by 19 per cent with the top industry sectors involved being:

The OAIC statistics reveal that 67 per cent of the data breaches stem from malicious or criminal attacks with the remaining 33 per cent stemming from human error (30 per cent) and system faults (3 per cent). Further, 44 per cent of data breaches stem from cyber security incidents caused by the following sources:

A key theme stemming from the OAIC report and statistics is the need for businesses to retain personal information for no longer than needed and to consider Australian Privacy Principle 11.2 in taking steps to de-identify or destroy personal information. Further, given compromised or stolen credentials is the leading cause of data breaches, the use of multi-factor authentication (MFA) and strong passwords should remain a cost effective, simple, but effective way to protect credentials.

Strata building “claims frequency” continues to be a theme heading into the end of the 2023/2024 financial year with “claims costs” continuing to rise, noting inflation in the cost of skilled labour and material inputs still exists but is not as extreme as during the logistical delays caused by COVID-19.

Weather events continue to be the main source of strata claims. However, strata claims due to weather events often shed light on latent defects in buildings due to defective design and/or construction methods. Water proofing continues to be a main theme of latent defect claims.

Additionally, Bellrock recently highlighted changes to the Emergency Services Levy and how it can impact property owners including strata owners and their insurance, see our article here.

Australia’s construction industry remains under public and legal scrutiny with claims activity steady. In the short term at least, premiums are likely to remain high as a reflection of the ongoing claims activity and limits on insurance capacity. Whilst construction materials and labour costs remain high, the logistical delays and supply chain issues attenuating COVID-19 have eased. Overall, the market is starting to soften due to increased capacity and competition.

Moreover, in March of 2024 the NSW government introduced its new practice standard for professional engineers to complete engineering work under the Design and Building Practitioners Act 2020. Two key aspects of this new practice standard are the requirement that designs must be fit for purpose and that on-site inspections occur during the construction phase of a project. See our article “Changes to registration for engineers scheme” for a further discussion of this change.

As previously discussed in our article, “The Building Practitioners Act – Implications for Construction Professionals and their insurers in an already hardening insurance market” , there were already challenges in the building industry and consequently onto the insurers of building professionals and practitioners in New South Wales following the initial introduction of the Design and Building Practitioners Act 2020 (NSW). Similarly, these same challenges exist in Victoria due to the amendments to the Building Act 1993 (VIC), as discussed in our article “Impending obligations for consultants working in Victoria’s building and construction industry”, which have created a new requirement for building practitioners that broaden the scope of professionals that fall within the definition of “building practitioner”.

Additionally, we continue to see frequency in “Worker to Worker” personal injury claims over the past 12 months which, with ongoing inflation in legal costs and increasing inclusion of psychiatric injury damages, remains a concern to construction businesses.

Lastly, there remains ongoing activity in the Single Project Professional Indemnity spaces around large infrastructure projects across Australia. The quantum of these losses is extensive and the tail of loss development lengthy, noting many policies span seven years.

There have been some interesting developments in the financial lines segment of the market, with special mention of the recent judgment in the Zonia and Baron securities class actions against the Commonwealth Bank of Australia (CBA). The Zonia and Baron securities claims alleged CBA breached its continuous disclosure obligations to the market regarding disclosures surrounding its Anti-Money Laundering and Counter-Terrorism Financing compliance and the Australian Transaction Reports and Analysis Centre’s (AUSTRAC) penalty proceedings regarding the same. Justice Yates of the Federal Court dismissed both class actions in favour of CBA, making clear that plaintiffs must clearly and specifically identify what information an entity should have disclosed, and vague allegations will not be sustained. A copy of the Judgment can be found here.

Given the subsidence in rates across directors’ and officers’ liability this Judgment, if sustained on appeal, supplies a significant win for listed companies in Australia and will require plaintiffs to carefully consider how future securities class action allegations are levied.

Additionally, consistent with our prior end of calendar year claims update, professional indemnity and financial lines claims remain active. Bellrock has continued to note a trend in regulatory proceedings, employment practices liability, and other litigated claims against professionals such as accountants, certifiers, engineers, and medical specialists.

Regarding employment practice liability, the Fair Work Act was amended via the Closing Loopholes No. 2 amendments, which will entitle many employees to the “right to disconnect.” This new right allows employees the right to refuse contact outside their working hours unless that refusal is unreasonable. Thus, an employee can refuse to monitor, read, or respond to contact from an employer or a third party. This change starts on 26 August 2024 for non-small business employers and starts on 26 August 2025 for small business employers. This new change may drive an increase in complaints for employers that, if unresolved internally, could be escalated to the Fair Work Commission.

Regarding regulatory proceedings, the Australian Securities & Investments Commission (ASIC) has now turned its attention the crypto markets where it won its first court claim against BPS Financial Pty Ltd (BPS) where it was held BPS engaged in unlicenced conduct for offering a non-cash payment facility using a crypto token named “Qoin.” Further, ASIC continues to make greenwashing surveillance a priority with 35 interventions to date. Lastly, as detailed in Bellrock’s article, ASIC v RI Advice, financial services licensees should still be aware of yet further actions from ASIC to come.

Consistent with our end of calendar year update, there has been a continuation in terms of increased severity and frequency of major weather events within the last 12 months continuing the pattern of property claims arising from severe weather and flood.

The most notable events over the past year include:

In addition to natural disasters, human induced property losses continue to be prevalent such as accidental fires and flooding. Further, Bellrock recently shed light on the risks that installation of solar panels has on commercial property from weather risks to fire risks and beyond. See our article here.

A persistent theme that remains prevalent throughout the insurance industry, and particularly claims, is inflation. Beyond the concept of social inflation due to societal trends, the Reserve Bank of Australia’s economists continue to warn that inflation (also known as price pressure) remains across the Australian economy. This has been felt not only by businesses but particularly by households across Australia. This has led to investment analysts forecasting the easing of interest rates may not occur until November of 2025. Lastly, recent data from ASIC shows that corporate insolvencies (particularly in the small business space) are at their highest levels since the global financial crises and corporate related personal insolvencies have also spiked due to director liabilities for corporate debts.

For more in depth market updates by product class, profession and industry, please see our individual reports below: