Premiums for company directors’ insurance have increased by a staggering 200%, according to a report in The Australian (01/06/18).
The newspaper suggests it is largely a product of the “surging cost of class action payouts by Australian companies”. The supporting data appears irrefutable with the aggregate value of securities class actions in Australia leaping from $112 million in 2003 to a whopping $1.5 billion and climbing.
Certainly the cumulative cost of securities class actions has impacted on both the Australian directors & officers (D&O) liability insurance market and the business community more generally. Companies of all sizes now focus on governance and culture more than ever.
It is likely the financial services royal commission will exacerbate potential class actions, with multiple actions already afoot targeting financial giant AMP. But the question is – how does this impact on privately owned, small and mid-market firms?
In an attempt to weaken litigation funders, the life blood of most securities class actions, proposed federal law reform may enable no win/no fee or contingency fee style arrangements to prosecute class actions. It is widely predicted such regulatory reform could see medium-sized classes bring actions against similar sized firms.
Clearly, that would put mid-market private firms and small-cap listed entities in potential litigants’ gun sights.
Protection for private entity directors’ and officers’ personal assets, often provided under the product name Management Liability, has never been more important.
While it is common for insurers to seek moderate premium increases in this market segment, albeit not to the extent mentioned above, JMD Ross recommends indemnity limits be reviewed to ensure appropriate protection is in place.
Once viewed as a boutique product, D&O protection is now universally regarded as an integral part of any firm’s effective insurance program.
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