State of the Market
D&O insurers of Australian listed companies are now strongly entrenched in strategies to deliver a substantial upward re-alignment of the Australian D&O premium pool. Insurers are taking this action in the face of ongoing profitability challenges emanating from Australia’s active securities class action environment and other significant claims activity.
As D&O insurance market conditions continue to deteriorate, APRA has identified that, notwithstanding pricing correction in 2017 and 2018, “premiums are still insufficient to offset the many prior years of rate reductions and inadequate premiums. Further premium increases are needed to generate a sustainable rate level to cover losses” (APRA, 2018)
The evolving nature of the class action environment and the lack of foreseeability of many securities class actions is hindering some insurers efforts to accurately model future premium requirements. This is demonstrated by the volatility in premiums offered between insurers and is especially evident in layers of insurance purchased between the primary layer and a limit of liability of $70 million.
Insurers’ perceptions of the current risk environment and/or the potential for multiple “full limit” losses is also tempering some insurers appetite for participation on listed organisation D&O programmes, at lower attachment levels, at any premium.
Non-listed organisations are also experiencing some modest upward pressure on premiums based on their individual risk profiles and business sectors. Insureds who operate within the retail, construction, energy and health sectors are subject to particularly rigorous review by insurers.
Climate change is a risk area receiving increasing focus from both regulators and advocacy groups.
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