Brought to you by:

‘Tick-box’ risk management won’t fly post-Hayne: WTW

Facebook Twitter LinkedIn Google

Widespread misconduct in financial services uncovered by the Hayne royal commission means a broader range of stakeholders than ever before will carefully examine organisations and judge whether risk frameworks are adequate.

That’s the conclusion of a new report from Willis Towers Watson (WTW), which points out the royal commission’s final report recommended a heightened focus on culture and governance among its 76 recommendations.

“What has typically been held as sufficient in this domain in the past, a tick-box exercise, will no longer be sufficient as stakeholders and regulators will seek real written and practical evidence of the proactive management of the broadest range of risk,” WTW’s Directors’ Liability Report says.

Global conditions for directors’ and officers’ (D&O) insurance, where prices have increased 250% in seven years, are “as challenging as they have been for many years,” the report says.

Attention being paid to the availability of D&O insurance and the related question of indemnities are likely to increase, “given the ever-growing list of personal liabilities that directors now find themselves exposed to”.

WTW says D&O premiums have seen significant increases across virtually all sectors and industries, including those which have previously enjoyed benign and stable prices over many years.

While overall capacity in the global market was still theoretically in excess of $US1 billion ($1.5 billion), WTW said insurers are often reducing their participation on a particular risk, with significant reductions in ‘usable’ capacity, especially in relation to companies with large US securities exposure.

“We are also seeing the imposition of more restrictive conditions and a generally less flexible approach to amending coverage terms. Insurers are increasingly using sub-limits and tailored exclusions and/or higher deductibles to curb their exposure.”

Asked how important it is to understand how disputes with insurers will be resolved, 73% of Australian directors surveyed in the report said they regarded this as very or extremely important, suggesting a high “perceived risk of such disputes arising in the first place,” the report says.