Aon has warned that law reforms are throwing up additional risks for the directors’ and officers’ insurance market, while challenging conditions are set to continue indefinitely this year.

“The emerging case law and other legislative developments do not currently, in our view, provide a sufficient basis for insurers to alter their views on the litigiousness of the securities class action environment or to accurately model potential future losses,” the broker says in a report.

In Victoria, a bill before Parliament will allow plaintiff law firms to charge contingency fees, which Aon says may increase interest in the pursuit of smaller-sized class actions that would be less attractive to litigation funders.

Tougher Victorian workplace safety legislation passed in December has also raised penalties for employers, while Federal legislation covering the corporate and financial sector last year introduced a stronger penalty structure across a range of civil and criminal offences.

Nevertheless, the speed at which securities class actions are filed may be tempered by a High Court ruling on common fund orders that could make it more difficult to gather together complainants.

Australia’s first judgment in a securities class action, against Myer, found the firm had breached continuous disclosure obligations, while also finding the contraventions “did not cause share price inflation”. The court has given claimants an opportunity to present further evidence on losses.

Publicly available securities class actions settlements last year were for sums below $50 million, Aon says, bringing the average settlement excluding defence costs since 2012 to $45 million.

The March report, titled Directors’ & Officers’ Insurance Market Insights, says London appetitive below a $100 million liability limit abruptly weakened in the third quarter of last year while Australian insurers are continuing to closely monitor portfolios and securities entity cover remains a difficult area.

“Aon continues to see an upward trend of incumbent insurers non-renewing business due to more stringent underwriting guidelines,” it says.

Insurer appetite remains strong for traditional coverage outside the securities entity arena.

Aon has called for innovative answers to challenges in the directors’ and officers’ market amid difficult conditions globally.

“It is in our interests as an industry to find solutions to address the current market challenges that continue to have a wide-reaching impact on business in Australia,” it says.

Click here to access the report.