As the Australian Securities and Investments Commission (ASIC) cracks down on regulatory breaches and more class actions are launched, directors’ and officers’ (D&O) insurance is coming under increasing pressure.

According to a new survey by law firm Colin Biggers & Paisley, 60% of D&O insurers have seen a doubling of the number of claims lodged since the global financial crisis.

Greg Skehan, senior partner in the firm’s insurance group, says the crisis has created a perfect storm of shareholder, creditor and regulator outrage.

“We’ve seen a big upsurge in legal actions against companies and directors as investors and liquidators try to recover their losses and ASIC mobilises to crack down on so-called corporate crooks,” he said.

“D&O insurance is consequently being called upon to cover a greater number of claims involving higher aggregate payouts, so it’s no wonder many policies are being squeezed, particularly in the area of payout limits.”

The pressure on D&O insurers is not expected to diminish, with 60% of them predicting class actions will be the main challenge to polices during the next 12 months.

This would be followed by greater enforcement action from regulators such as ASIC (20%) and the rise in liquidator actions (8%).

This is not good news for insurers, as the survey found 20% of them saying policies don’t fully cover their costs in up to 25% of claims, while 10% say the policy isn’t sufficient to cover costs in 25% to 50% of claims.

Mr Skehan says while the system was not yet at breaking point – given that the majority of respondents (70%) reported that an insured’s claim costs were generally fully covered – there are clear signs cracks are developing.

“Policy limits have been reduced in recent times with 44% of respondents saying this was the most significant change made to their D&O policies in the past 12 months,” he said.

“The survey also found 75% of respondents offer policy limits of $30 million or less, yet, 22% were settling class action claims for an average of $50 to $100 million – sums far in excess of conventional limits.

“Clearly where big ticket class actions are concerned D&O protection can be highly illusory.”

Mr Skehan says that another significant area where directors are being left out of pocket is investigation costs – a by-product of ASIC significantly upping the ante on enforcement action in recent times.