Australian directors’ and officers’ (D&O) rates are expected to continue easing in the months ahead after contracting 5% in the second quarter of this year, the first decline since 2017, Marsh says, following the release of its latest quarterly update of commercial insurance premium pricing.

Overall pricing in the Pacific market – in which Australia makes up about 80% of the business for Marsh – went up 7% in the June quarter, slower than the 10% rise seen in the first quarter and is the sixth straight quarter of moderation in rate rises.

D&O rates in the Pacific market have been also rising at a weaker pace in the last several quarters. They rose 5% in the March quarter, 15% in the prior December quarter, 20% in the September quarter and 40% in the June quarter last year.

“Our [D&O] outlook for Q3 and beyond is for further softening,” Marsh Deputy Head of Global Placement Scott Eccleston told insuranceNEWS.com.au.

“However, this is tempered by a growing consensus from market participants that an uptick in claims activity would seem likely.

“For now, most clients have choice and with choice comes competition. After the hard market years this is a very welcome development and we have been delighted with a range of recent outcomes we have achieved on our clients’ behalf.”

Strong competition from incumbent insurers and entry of new market participants, especially for those risks at the vanilla end of the spectrum, is one of the factors behind the downward trend in prices.

He says peak cycle rates, healthy premium pools that have been accumulated over the past few years and a downswing in global M&A activity, particularly out of the US, have seen insurers turn their attention to the Australian D&O market and the opportunities that it presents to meet budget shortfalls.

Overall D&O claims activity has been tracking a little below average, Mr Eccleston said. “The claims experience would seem to have emboldened some to re-consider the riskiness of the Australian D&O market.”

In relation to macro factors, he says disclosure law changes and the imposition of regulations over the litigation funding industry have been largely positive in dampening shareholder class action activity over the past couple of years.

But there may be changes ahead that spark a shift in the claims environment.

“Notwithstanding however, the change in Federal Government and the prism through which the new ruling Party views the shareholder class action regime, we may see a number of recent reforms unwound, thereby returning the business community to a more favourable environment for plaintiff lawyers and their litigation funding partners,” Mr Eccleston said.

“Together with a downturn in the broader economy and ongoing inflationary impacts, an uptick in claims activity could ensue.”

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