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.
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 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 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?
Andrew Bremner CA, MAppFin (Macquarie), MAICD