The Insurance Council of Australia has outlined its support for several proposed changes to Australia’s class action regime and litigation funding industry.
Speaking via video conference before the Parliamentary Joint Committee on Corporations and Financial Services, ICA senior policy manager Tom Lunn said that while the ICA agrees with the role that class actions have in providing access to justice for Australians, it also supports several changes to the system to ensure that it remains fit for purpose.
These include a licensing regime for litigation funders, in order to have greater oversight of the industry, as well as reforms to address inefficiencies and unnecessary administrative expenses such as multiple competing closed class actions.
With regard to the first matter, ICA welcomed the Commonwealth’s recent decision to require litigation funders to hold an Australian Financial Services (AFS) licence. The organisation also showed support for other measures, such as a more robust certification process, which it believes can help address core issues and inefficiencies that impact both class members, defendants, and the wider judicial system.
According to Lunn, ICA “strongly supports” recommendation 24 from the Law Reform Commission, which calls for a separate review into the legal and economic impacts of the continuous disclosure obligations of the Corporations Act.
He added that the ICA’s submissions are due to the impact of increasing securities class actions on the availability and affordability of Directors and Officers ‘Side C’ insurance in Australia.
Due to the continuous disclosure obligations, ICA argued that Australia has become a highly attractive and profitable market for litigation funders and the most likely jurisdiction outside the United States in which a company may face significant class action litigation.
This, Lunn said, has caused a sharp increase in the cost of D&O insurance in Australia, along with further contraction and hardening of the market.
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“Fewer insurers are now willing to provide this cover,” Lunn said. “Those insurers who are willing to provide cover are increasing their premiums. They are also reducing coverage limits.”
He revealed that in in 2018, premiums rose by an average of 88%. Meanwhile, in 2019, premiums rose by at least 75%.
“This is making D&O insurance very expensive, and for many smaller listed companies the premiums may be close to unaffordable,” he added.
