Everyday Australians have been feeling the pinch around rising insurance costs for some time, thanks to a hardening market. However, it seems that numerous businesses around Australia have been feeling a pinch of their own, due to rising costs for Directors and Officers (D&O) cover.
Currently the sector is viewed as loss-making, with costs having undergone significant rises in recent years. Speaking to the West Australian over the weekend, insurance brokers Marsh & McLennan stated that D&O premiums had risen by more than 350% since 2011, primarily as a result of class action lawsuits.
It appears the revelations around the Financial Services Royal Commission may have a role to play in future price hikes too, with the West Australian reporting that a number of insurers are already beginning to insert “Royal Commission exclusions” into their policies.
At least one class action lawsuit has already begun as a result of earlier findings during the Royal Commission, and if more follow these clauses could potentially see a number of high-profile D&O claims denied.
Additionally, on September 01 the Treasury Laws Amendment (2018 Measures No. 3) Act 2018 (Cth) saw a number of changes take place to the penalties outlined under Australian Consumer Law (ACL).
These changes update the maximum penalty that a court can order if a company is found to be in breach of ACL. Previously, the maximum fine businesses could face was $1.1 million, but a much broader array of options has now been unveiled. Organisations in breach can now be penalised up to the greater of: $10.0 million; three times the value of the benefit; or if the benefit cannot be determined, 10% of annual turnover in the relevant 12-month period.
When businesses are penalised under such rules, fines are usually paid via D&O insurance – but with a steep increase in potential penalties, many insurers will likely reassess their exposure in this area.
