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Australia underpricing D&O liability, says Zurich

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Claims exceed premiums from directors’ and officers’ (D&O) liability policies in Australia, but the market will remain soft due to the amount of competition, says Zurich’s Global Chief Underwriting Officer for D&O Liability and Financial Institutions, Paul Schiavone.

He says rates keep falling here despite claims exceeding total premium income of around $200 million.

“This is a challenging market,” he told a seminar in Melbourne last week. “Are we pricing the risks correctly in Australia? I would say no.”

Mr Schiavone told the 2011 Zurich Financial Lines Forum that as many as 25 carriers write D&O in Australia, with European and US companies entering the market due to perceived profitability. But he says this is true only for excess cover, not for primary layers.

The market is “very dynamic” because of the competition, but while Australia leads the world in product innovation, it is also unique for the number of very large claims. Mr Schiavone says it is the top market for D&O litigation after the US.

He says policies keep getting broader, and terms and conditions would usually be curbed in a hard market. “The next hard market will focus purely on price.”

Mr Schiavone says new inclusions are covering raids by regulators, when legal costs are incurred before any wrongdoing has been alleged.

Emerging risks include global shareholder litigation and regulatory actions resulting from increased legislation.

Although large shareholder litigation cases dominate claims, followed by employment and regulatory actions, he notes D&O business includes many smaller-level claims that can mount up.

He says global companies are increasingly looking for international D&O programs, but it requires skill to navigate the differing requirements among jurisdictions.