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One of the more rewarding aspects of being an insurance broker is getting to watch clients grow their own business thanks to the security a solid policy provides – however, once an SME takes that next step towards an IPO, brokers may find themselves having to suggest significantly different coverage.
“Companies seek listings to raise capital to develop their business, but the benefits of this come with significantly increased compliance obligations, not least continuous reporting requirements for the Australian Securities Exchange,” says Michael Herron, national head of professional and financial risks at major brokerage, Gallagher.
Herron warns that, if firms are unable to live up to the onerous expectations – failing to report an earning downgrade promptly, for example – investors may end up buying shares based on an incomplete disclosure of information.
“Those sustaining losses as a result may be encouraged by plaintiff law firms to join a class action, often backed by litigation funders,” says Herron, who notes that securities and disclosure breaches have contributed to the current spike in D&O premiums.
“Securities liability and litigation costs arising from such class actions are covered under an annually renewable D&O program,” says Herron. “Prospectus liabilities are typically covered by a one-off, single premium policy, running for up to seven years.”
However, Herron also warns that insurers are becoming more selective of the risks they insure, with an increasing number prepared to put up terms only after they have considered responses to an extensive list of questions.
“This is challenging for large raising where clients seek significant capacity from multiple insurers,” says Herron.
