Federal Government changes to listed company continuous disclosure rules and increased regulation of litigation funders are a positive for the directors’ and officers’ (D&O) insurance market, Aon Australia says.

“We are heartened to see the Government’s favourable response to the business community’s lobbying for better control of securities class action activity through this series of announcements,” Aon Financial Services Group Director Eden Fletcher said.

“This has to be seen as a positive development for the increasingly challenged D&O market.”

Aon says in the short-term the move provides assurances to insurers around the potential for a spike in claims related to COVID-19, while opening the door for further discussions about future reforms to the continuous disclosure regime.

Treasurer Josh Frydenberg last week eased the disclosure obligations for six months as the coronavirus makes it more difficult for firms to make accurate forecasts, raising the risk of “opportunistic” shareholder class actions.

The Government will also require class action litigation funders to obtain an Australian Financial Services Licence from August 22 as part of increased oversight under the Corporations Act.

“While there may be some limitations as to the practical import of the changes to the continuous disclosure regime, these announcements are a positive development that will help both to relieve some of the pressure on companies amid COVID, and to open up some capacity and optimism in the insurance market,” Aon Australia CEO James Baum said.

D&O premiums have continued to soar this year following recent surges driven by an increase in class action activity, while insurers are also increasing deductibles.

Marsh Head of Finpro Craig Claughton says the disclosure change rule is welcome and will give directors and officers some breathing space as they guide companies through the pandemic, but it does not address the broader landscape.

“Companies and insurers are swamped with large claims. As a result, insurers are likely to continue to charge the higher premiums they deem necessary to be able to underwrite this class of business,” he said.

Lawyers Allens Linklaters says the regulation of litigation funders in particular may cause at least a short-term softening in class action filings.

“There are some clear limitations to the continuous disclosure measures and questions remain as to the level of protection they will provide against the risk of shareholder class actions,” the firm says.