A leading law firm says there is no evidence of an “excessive propensity” for companies to be the target of funded shareholder class actions.

And it has called on insurers to more rigorously assess customer’s corporate governance and culture when pricing risk.

“Premium prices vary inversely with governance quality,” Maurice Blackburn says in a submission to the Australian Law Reform Commission.

It rejects the suggestion that continuous disclosure obligations have increased the risk.

“Australia’s pairing of an enforceable statutory disclosure regime with a viable means of collective redress has created a more stable and attractive market for investors… and in fact reduces litigation risk for companies that do not engage in wrongdoing,” it tells the commission’s review of third-party litigation funding.

National Head of Class Actions Andrew Watson says below 0.3% of all listed companies face a shareholder class action in any year.

Concerns around the cost of directors’ and officers’ (D&O) insurance are misconceived, and to the extent that premiums are underpriced, the most obvious solution is for insurers to review pricing, Maurice Blackburn says.

If corporate wrongdoing and consequent market distortion is reduced, premiums will decline.

Maurice Blackburn says D&O insurers that do not assess an insured’s corporate governance and culture when pricing risk should start doing so.

“The effect is that premium prices vary inversely with governance quality.”

Rising premiums are partly attributable to a correction in a market that has historically been underpriced due to competition from new entrants, Maurice Blackburn says.

The law firm backs the creation of a licensing regime for litigation funders, and minimum character and qualification requirements.

Lifting the contingency fee ban will improve returns to class action plaintiffs, it says.

The law firm will not support proposals to disallow competing class action lawsuits, because it would apply to all actions without distinction between different shareholder cases.

One law firm would be granted a monopoly, Maurice Blackburn says.

In its submission, law firm Phi Finney McDonald (PFM) says the appropriate response to D&O premium rises is to wait for the market price to stabilise, then decide whether coverage is worth the cost. This may result in more companies going without insurance or underinsuring.

There is no evidence D&O coverage is too expensive relative to premium costs for equivalent policies in other jurisdictions, PFM says.

D&O premiums have surged by about 200% in the past 12-18 months as class action payouts have soared. Some insurers are leaving the market if they cannot secure premium rises.