“Significant capacity” exists in the Australian directors' and officers' liability (D&O) market, according to research conducted by a Melbourne risk consultancy. The research, conducted for law firm Clayton Utz by Strategic Risk and Insurance Solutions, indicates that insurers are being more selective about the individuals they insure, and they are asking “increasingly probing questions” about their companies and approach to corporate governance.

Clayton Utz Insurance Practice Head Nancy Milne says boards “are being subjected to more rigorous checks on their conduct and policies by underwriters. With shareholders and insurers having a common interest in seeing best practices being adhered to by directors and officers, this development is good news for the market.”

The researchers found reduced capacity in the D&O market, but said there is still “significant capacity available for acceptable risks”. Up to 14 Australian-based insurers are writing D&O business, Ms Milne said.

“Increased competition for insurer capital has, however, led to insurers being more stringent in their risk assessments. Underwriters will no longer accept a risk unless they are completely satisfied with the information provided to them.

Warning businesses they will “have to take their insurers into their confidence”, Ms Milne added: “And, yes, there have been premium increases of an average 10 to 30%, but they are much less severe than we had been led to believe.”

The researchers said the general consensus among brokers and underwriters is that severe increases in premiums are likely to be less frequent as most of the correction “should have occurred during the past year”.