ESG, D&O and Cyber: Mapping Future Insurance Trends in Australia

Bear in mind that a local insurer will have reinsurance arrangements, so the global/London markets should be considered. Issues that currently stand out in the insurance market include the following:

Following a period of significant premium increases (since 2011 but especially from 2016 onwards), things now appear to be changing back in favour of the policyholder. Reports from major brokers in the market are now fairly consistent across Australia and the UK: prices are stabilising and some reductions are being observed, in some cases with up to 15–20% reductions in premiums.

This is partly due to an increase in market capacity, with more competition from London-based and other global insurers who have historically not been so badly impacted by securities class actions. With the pricing now being offered and the lessons learned from the past, that should lead to a more sustainable D&O market going forward.

The good news from a policyholder perspective is that, throughout, the scope of coverage has been fairly stable. Changes have been focused around levels of cover and retention on premiums.

Recently there has been a particular focus on solvency/insolvency exclusions, especially given widespread volatility in the global economy.

ESG is a broad concept, covering the following:

As a result, it is a type of issue that can affect multiple forms of insurance.

Climate-related legal actions and steps are being taken by activist shareholders around the company’s approach to climate change and the management of climate-change risks and there is increasing interest in the potential liability of directors in this respect.

The Insurance Council of Australia developed climate-change roadmaps and best practice guidance for members regarding the move towards net zero and making specific submissions in relation to climate-related financial disclosure requirements.

Disclosure risks are a big focus: for example, greenwashing claims mean there is a lot of focus on market updates, annual reports and sustainability reports and making sure that what is said matches the reality.

Reputational fallout from cyber-incidents can be enormous and data breaches can give rise to a range of costs and liabilities that can run into tens of millions of dollars. A cyber-incident does not just touch on one policy but may touch on many policies. Ideally, policymakers want to be in a position before the cyber-attack happens to know which policy covers which loss.

As cybercriminals become more sophisticated and their methods change, insurers will expect that companies will also increase their cyber-resilience. With renewals, insurance companies will ask questions about the policyholder’s cyberpolicies and what is being done to prepare for a cyber-attack. Ensure that your policy is fit for purpose: ie, does it describe the attack or the method in which you are being infiltrated appropriately so that it does cover your risk? Otherwise, there is the risk of being excluded from the policy because of a technicality.

Anne Hoffmann is a partner in Herbert Smith Freehills’ disputes team, specialising in insurance

Guy Narburgh is special counsel of the insurance team

Podcast moderator, Tristan Smith is senior associate in the insurance team