Home / Regulatory & Government / Industry pushes for reform of class action laws
3 August 2020
The insurance industry has made its case before a parliamentary inquiry into the class action system, pushing for reforms to arrest the sharp escalation in directors’ and officers’ (D&O) premiums.
Increased oversight of litigation funders via a mandatory licensing regime is one of the changes that should be considered, the Parliamentary Joint Committee on Financial Services and Corporations was told last week.
Insurance Council of Australia (ICA) Senior Policy Manager Tom Lunn says the industry supports the role that class actions play in helping Australians access justice, but also warns the prohibitive cost of acquiring D&O in the current climate is not sustainable.
Premiums rose at least 75% last year and an average of 88% in 2018.
“Fewer insurers are now willing to provide this cover,” Mr Lunn said. “Those insurers who are willing to provide cover are increasing their premiums. They are also reducing coverage limits.
“This is making D&O insurance very expensive, and for many smaller listed companies the premiums may be close to unaffordable.”
Industry representatives rejected a suggestion during the inquiry that it was seeking to water down the continuous disclosure regime for listed companies, which has been blamed for a surge in securities class actions.
ICA says in its written submission to the inquiry that a breach of these obligations can arise from an honest mistake, as opposed to any deliberate intention to withhold information, and defending against such lawsuits can be very hard.
“The problem is that the law around continuous disclosure is very uncertain, so there is not much in the way of legal precedent to guide both defendants and plaintiffs as to how a case might play out,” ICA Professional Indemnity Insurance Committee Chairman Ewen McKay told the inquiry.
“There are a number of reasons why you would settle a matter before it reaches final judgment in court. Very few cases, regardless which side they are on, have a 100% chance of success.”
Marsh Australia CEO Scott Leney told the inquiry many of the broker’s clients are under significant stress because D&O covers are increasingly unaffordable.
Some have had to agree to excesses of up to $500,000 in order to secure D&O cover, and in one extreme case a client took on a deductible of more than $200 million.
“Securities class actions supported by litigation funding are causing an unprecedented increase in premiums and retentions that we fear is unsustainable,” he said.