Stock exchange operator ASX has discussed the rising cost of directors’ and officers’ cover with London insurers amid worries the issue may undermine the attractiveness of the local securities market.

ASX says in a submission to a Parliamentary committee inquiry that the insurers it engaged with in talks this year indicated that Australia is seen globally as the jurisdiction with the highest exposure to securities class action risk, and it’s an increasing concern.

“To the extent that this issue impacts on the cost of doing business in Australia, and in particular the cost and attractiveness of operating as a listed entity in Australia, it suggests that regulatory reform may be appropriate,” it says.

ASX defends the continuous disclosure regime, while noting that over time a requirement to provide a fault element against a company accused of a breach has been removed.

The Parliamentary Joint Committee on Corporations and Financial Services inquiry into litigation funding and the regulation of the class action industry is due to report by December 7.

But the Federal Government has already made some changes, including temporary adjustments to continuous disclosure rules due to the COVID-19 outbreak, so liability only applies if there has been “knowledge, recklessness or negligence”.

ASX says it supports the temporary move and is open-minded about a permanent change to introduce a fault element as a defence for listed companies against private civil action.

The Insurance Council of Australia has also reiterated its case for reform to the parliamentary committee inquiry, including that there should be a separate review into the legal and economic impacts of the continuous disclosure obligations.

Marsh says the average D&O insurance increase in the first quarter this year was 225%, with some premiums rising as much as 400-500% for the biggest ASX-listed companies.

“COVID-19 will continue to exacerbate the market hardening, with London capacity for Australian risks further withdrawing, and inevitably impact pricing for the balance of 2020,” the broker says in its submission. “We are once again seeing triple digit pricing increases.”

Marsh warns a hardening market in Australia and globally is likely to continue over the next 12-18 months.

“Corporate Australia could face a future in which D&O insurance is no longer available or affordable or provides the coverage expected or required,” it says.