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The Australian D&O market has made global news as one of the most volatile in the world, thanks to an increase in claims under the Side C section of policies. But will insurers look to ditch the cover? Not yet, according to one expert.
Speaking to Insurance Business, Robyn Melean, FINEX account director at Willis Towers Watson, said that insurers are currently not looking to scale back coverage.
“To date, insurer focus has been on managing capacity and increasing premiums and deductibles, rather than dropping or reducing the scope of the cover,” Melean said. “The number of insurers offering primary capacity for listed entities has reduced as has the number of insurers providing capacity below a $50 million attachment point.
“Side C cover continues to be available; however, the cost of this cover is significantly higher than in previous years.”
Melean said that competition between insurers in the market has “cooled” as firms become “more cautious” about the business they are covering and “more thorough in their underwriting process.”
"In some instances, the underwriting decisions are being made at head office level with more thorough review and less flexibility,” she continued.
Melean noted that it is possible that the scope of Side C cover becomes more limited over time, or that co-insurance may apply to Side C cover if claims activity remains at the current level.
“The average class action settlement is typically between $50 million and $60 million with an additional $10 million incurred in legal and defence costs,” she said.
With the number of shareholder class actions lodged each year continuing to increase, Melean noted there are now more than 20 litigation funders operating in the Australian market, which is deriving class action activity.
“In 2017, there were 12 new class actions filed with potential for another five reported in the media,” Melean said.
Three notable settlements saw QBE pay-out $132.5 million, Treasury Wines $49 million and Slater & Gordon $36.5 million. Melean said that she understands that insurers in the D&O market “contributed substantial amounts” in settlement and defence costs.
“It is this claims activity that is driving changes to insurer appetite and pricing,” Melean said.
