Marsh has warned that companies in Australia face the prospect of having to operate without directors’ and officers’ (D&O) cover as steep rate rises of up to 250% threaten the viability of the market.

The major broker says if current trends persist, there could come a day in which “D&O is no longer available or affordable”.

Premiums rose 75% on average in the first three quarters of last year, and will continue to harden this year and beyond, the broker says in an update.

In 2018 prices accelerated 88% on average, and in the past seven years they increased about 250%.

“We do not see any signs of these increases slowing,” Head of Financial and Professional Services Practice Craig Claughton said. “In fact, some D&O programs now cover less than they used to, at greater cost.

“The implications of no D&O coverage are grave. Deeds of indemnity may not be able to be fulfilled in relation to any requirements to arrange insurance protections, and boards may be unable to attract and retain high-quality directors.

“Whether these prospects are damning enough to inspire meaningful changes in the landscape of corporate litigation is yet to be seen.”

Marsh says the problems that have plagued the loss-making line have worsened. The number of class actions continues to rise, and at the same time, directors are under increased scrutiny from regulators.

At the same time insurers have moved to cut their exposure by reducing capacity, raising prices and introducing more exclusions.

“The recent escalation in both the number and value of class actions is deeply concerning,” Mr Claughton said.

“We’re seeing more and more directors increasingly finding themselves responsible for the management and oversight of the business and operations at an increasingly granular level, where they could be found liable simply by virtue of their position, and regardless of their actions.”

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