Directors’ and officers’ (D&O) insurance in Australia faces yet another challenge as the uncertainty surrounding the coronavirus outbreak takes its toll, says broker BMS Group.

Directors are facing “uncharted waters” and insurers may decline to offer any terms rather than rely on exclusions, according to a report written by Director and National Head of Financial Lines Stuart Davies and Divisional Director Financial Lines Sam Ford.

They say that while changes to legislation around trading while insolvent have given some relief, D&O insurance markets “have moved early to identify areas of concern”.

The sector is already adjusting to the impact of Hayne royal commission, increasing security-related class actions and contracting capacity.

“These issues have resulted in a tightening market with restricted limits available, combined with increased pricing [which is] substantial in some areas such as side C cover for listed companies,” the article says.

“The COVID-19 crisis adds another layer of complexity to the market environment.

“While some insurers will look to protect their positions by imposing and maintaining certain exclusions on policies, most leading markets recognise the weakness in relying solely on policy terms such as insolvency exclusions, and prefer to impose tighter underwriting criteria at the point of risk analysis.

“What this ultimately means for clients is that insurers will be taking a closer look at a number of areas of your business to form a view of the likelihood of the business successfully navigating the crisis and coming out the other side.

“It is likely that if insurers cannot gain a level of comfort about the ability of an insured organisation to adapt and survive over the next six to 12 months, they may decline to offer any terms rather than rely on policy exclusions.”

BMS says that from the insureds’ perspective, early engagement with brokers is crucial.

“As we have witnessed through 2019, the traditional market placement approach has become ineffective if [the broker] does not engage and agree on an adaptable strategy way in advance of renewal or placement.

“It is critical to discuss and agree on a market strategy at least four months out from renewal.

“Implementation of this strategy should be adaptable and allow for movement of capacity, limits, deductibles and adequate time to guide insurers through [a] business, providing that level of comfort necessary to attract their attention and interest.”