Insurers have pushed for litigation funder licensing and other changes to the class action regime in submissions to an Australian Law Reform Commission (ALRC) inquiry.

Broker Marsh says the directors’ and officers’ (D&O) insurance market is at a tipping point, while the Insurance Council of Australia (ICA) supports ALRC proposals to regulate funders.

It also endorses a plan to separately review sharemarket disclosure obligation impacts.

ICA says the D&O insurance market has become unprofitable, with insurers having to significantly raise premiums or stop providing cover.

“Securities class actions based on a breach of duty of disclosure obligations are exceedingly difficult for a company or director to defend,” it says. “A breach and liability to pay millions of dollars in compensation can arise from an honest mistake as opposed to any conduct involving a deliberate intention to withhold information.”

The average settlement for securities class actions is estimated at $50 million, with some settling for more than $100 million, while the D&O premium pool is relatively small at about $280 million.

The ALRC this month released submissions regarding its discussion paper on proposed litigation funding reforms.

It will deliver a final report to the Attorney-General by December 21.

Marsh says class action liability and third-party litigation funders are contributing to an increasingly dire D&O market.

“If Australian companies cannot secure sufficient D&O coverage, they will struggle to attract, retain and develop capable and experienced directors and officers,” it says.

Marsh says ASX 200 clients have seen a 353% increase in D&O costs between 2011 and this year, while retention levels have risen 440%. Since 2016 costs have risen 202% and retentions 331%.

Insurers that have withdrawn from covering ASX-listed companies in D&O include WR Berkley, AAI, Lloyd’s Novae and Lloyd’s Canopius. Others have reduced their exposure and become more discriminating.

The total value of D&O insurer contributions to securities class action settlements since 2011 is estimated to be more than $1 billion, Marsh says.

Zurich proposes reforms including improved guidance for continuous disclosure and the introduction of a “reasonable steps” defence. It also supports regulation of funders.

London-based Harbour Litigation Funding says a licensing regime for funders “goes too far” and cautions against undermining Australia’s robust class actions regime in an environment where serious corporate wrongdoing continues worldwide.

“Any watering down of the force of corporate governance regulations or tempering of the ability of victims to seek private redress will not engender greater corporate responsibility.”