Manufacturers Insurance

There’s no doubt that insurance premiums are on the rise. This is particularly true for Director’s and Officer’s (D&O) Insurance.
According to research quoted by the Australian Financial Review, “D&O premiums increased on average by 229 per cent for ASX 200-listed companies over the previous reporting period and average corporate D&O spending rose 173 per cent…”
You may be inclined to immediately point to COVID-19, but this is just one part of the bigger picture. D&O premiums have, in fact, been on a steady rise years before the pandemic. This is primarily because the number of claims (such as class action lawsuits and derivative actions) relative to premiums being paid have been at an increase. This, compounded by the devastations caused by 2020’s pandemic, cyberattacks, global events and natural disasters has aggravated this increase even further.
According to The Australian Financial Review, “Six insurers stopped issuing D&O products over the year, prompting Mr Armour to warn that a lack of capital inflow into the market would continue to push premiums higher and reduce coverage.”
The rise in premiums have particularly impacted non-for-profits, with some Directors choosing not to be insured despite being exposed to significant risk.
Side A comprises of Directors Liability for liabilities and legal defence costs arising from wrongful acts in their capacity as directors or officers. It essentially provides cover for past and present directors and executives.
Side B is for Company Reimbursement of Directors Liability where the company is liable to indemnify directors such as under a Deed of Indemnity.
Side C is for claims arising from public trading of securities such as securities market conduct breaches
As well as the rise in premiums, there has been a decrease in cover provided with D&O Insurance. Research quoted by AFR states that “the limit on Side C coverage decreased by 28 per cent over the reporting period, which covers the 12 months from Q3 2019 to Q3 2020; and the limit on Side A, B and AB decreased by 16 per cent.”
The first thing we need to do is accept that the rise in premiums won’t go anywhere anytime soon. This being said, however, there are strategies we use with our clients (in both publicly listed and private companies) that help mitigate these rising costs while maintaining applicable cover.
Some strategies, which I detailed in this previous post, include:
As grim as the outlook may be for companies needing insurance, there is still room for maneuverability. If you’re considering new insurance options or need to find methods to combat rising premiums, I highly recommend speaking to your broker. Based on our experience with clients, you may be surprised at the cost opportunities available to you.
This article originally appeared on Crucial Insurance Website and has been published here with permission.
Advisr does not provide advice and does not hold a financial service license (AFSL). All information above has been provided by Tony Venning.
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