These Australian lawsuits are starting to increase the expenses associated with this form of coverage.
The business insurance industry is facing considerably higher costs due to the rising number of payouts being made in shareholder class action lawsuits, and this trend is causing the premiums for directors’ and officers’ coverage to rise.
In 2012, there was an estimated total of $506 million in class action settlements made.
This was an increase of approximately $200 million over the total payouts that were made in 2007. This, according to a report by an Australian law firm, King & Wood Mallesons. As class action suits are rapidly becoming more common, and as the new regulations in the country are boosting the responsibilities for directors, business insurance companies are saying that directors’ and officers’ coverage is shrinking in its profitability.
This forces business insurance companies to either increase their premiums or reduce their coverage limits.
According to an Aon Risk Solutions national specialist in this sector of business insurance, Julie Hamilton, some directors have already begun to up their indemnity. Though there has not been a considerable increase in the cost of business insurance – as there is still a large amount of competition within this marketplace – Hamilton has cautioned that this trend likely will not continue.
She stated that “As a result of the increasing body of class action settlements there is an increased focus by many insurers on both capacity and retention management … While insurer competition is continuing to suppress rates, some insurers are ‘testing the waters’ by seeking opportunities for modest rate increases where circumstances allow.” Some of the directors of companies listed on the ASX have been boosting their indemnities following a benchmarking of their own policies against claims data and peers.
Hamilton also pointed out that directors who choose to purchase their business insurance without taking coverage for class action lawsuits may be able to receive a discount on their premiums. However, this would mean that if they should ever face this type of suit, they would have little to no coverage available to protect them against the associated costs.