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D&O premiums are increasing between 200-300%. 
 
 
 
 

What is going on?

 

In Australia class actions are all the rage.  Despite being 13 times smaller in population, the raw number of class actions in Australia is second only to the US.

Class actions in Australia take many forms including securities (31%), consumer claims (21%), natural disasters (18%), financial products/investments (18%) and more (12%).

The chart below shows the number but does not reflect the settlement value of class actions.

 

 

 
 
Source: XL Catlin/Wotton + Kearney Australia September 2017

 

 

What is the cost of the class actions?

 

The numbers here are staggering.  In Australia, the range of settlement value is between A$30-A$200m (2003-2016).

Some of these settlements have remained confidential.  However, the view is that the average settlement is A$50m.

Insurers are sharing the load paying 80% of the average claim or A$40m including defence costs.
 

 

Insurers have been playing chicken

 

The D&O insurance market has been deeply unprofitable for the past six years.

With A$350m forecast claims (2016 and more beyond), the profitability outlook is not healthy for D&O insurers.

Insurers have been acutely aware of this but have held back increasing pricing concerned about losing customers and market share.

The dam is bursting and premium increases of between 200%-300% are needed to bring profitability to the D&O insurance market in the short term.

 

The drive for D&O profitability is also affecting pricing of Side A, Side B and management liability (D&O for small, medium business).

 

 

What should you do?

 
Unless you’re prepared to have your personal assets at risk, having Side C D&O coverage is essential.
 
There are many, many local and international D&O insurance markets available.  Each with different risk appetites (and pricing) based on industry, size of organisation, location, history and more.
 
We recommend taking two steps.
 
Firstly, as there is a lot of variation between policies, a D&O coverage health check performed to ensure that you understand precisely what is being protected.
 
Risks change year on year and therefore insurance as a risk mitigation needs to change with this. We observe all too often this step is either discounted or overlooked.
 
Secondly, once the requirement is clear, “shop hard” each year for the next three years for quality D&O insurance at cost effective pricing.

 

 

Andrew Bremner CA, MAppFin (Macquarie), MAICD
Managing Director 

Sherpa Insurance

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