The Risk and Insurance Management Society (RIMS) will work with members to examine a rise in class action activity that is causing “unstainable” losses in the directors and officers’ (D&O) market.

Discussions at the group’s Sydney forum last week questioned whether gathering as few as seven shareholders should be sufficient to launch a class action.

“This has enabled an enormous number of claims to be raised, and settled, causing significant losses in the Australian D&O market,” RIMS Australasia President Kevin Bates told insuranceNEWS.com.au.

“The quantum of losses has exceeded the total premium pool by more than 600%, which is clearly not sustainable.”

Potential solutions may include judicial intervention to eliminate vexatious litigation and unconscionable conduct. A legal case could also be pursued, rather than settled, to air arguments and allow a precedent to be set.

“RIMS will be working with the insurance carriers and law firms representing those insurers to facilitate some clear thinking as to what can be done to eliminate those securities class actions that are clearly not in the best interests of the shareholders,” Mr Bates said.

Insurers and brokers say the market is experiencing reductions in capacity and surging premiums for companies seeking side-C – or corporate entity – cover.

AIG Australia CEO Noel Condon told the forum “ambulance-chasers target those companies. They know there is insurance in place and, frankly, we are an easy touch.”

Allianz Global Corporate & Specialty’s Pacific CEO Willem van Wyk says problems relating to D&O side-C cover are a significant issue for the industry.

“There are more law firms coming in, there are more funders coming in and the trend is definitely still on the up,” he told the forum.

“I do think the whole space will change. Larger companies that buy side-C will take much larger deductibles and so on.

“Otherwise the cover may just not be available in the future.”