In my early career working in the Australian insurance market, the view of London from my home country as a market to place local directors’ and officers’ (D&O) risk was not always favourable. Opinions ranged from London underwriters not understanding the domestic Australian market and what clients want, to not knowing how to model and price Australian D&O risk, as well as being inconsistent partners likely to drop in and out of the market.
This was an unfair representation of what London offers. Now underwriting Australian D&O risks from London, I see first-hand how the London market approaches Australian risk and genuinely takes the time and resource to understand the D&O liability exposures Australian businesses and their executives face from an active and litigious class action regime.
An Australian history of securities class actions
Considering Australia has just over 2000 companies listed on its stock exchange, the country punches above its weight when it comes to the frequency of securities class actions. Since the class action regime was enacted by the Australian Government in 1992, a steady increase in securities class actions saw numbers spike in 2018, persuading many incumbent insurers that Australian D&O business was no longer worth the risk. Into 2019 and then 2020’s Covid pandemic, the Australian market became very hard, with limited options for businesses looking for primary D&O cover. Fast forward another five years and the situation is different once again with carriers looking at getting back into the market and seeing a lot of opportunity from higher premiums.
It’s that inconsistency of support, however, that has probably done more to feed the idea that London has been unreliable when it comes to supporting Australian D&O, given carriers have come in and out of the Australian market, creating a feeling of unpredictability for Australian businesses who want to know they're dealing with stable insurance partners committed to the long term. I would argue against that perception. Yes, carriers have dropped out in the past but many of those were the local Australian insurers and MGAs who wrote D&O business. London carriers never deserted the Australian D&O market ‘en masse’ and have shown real staying power through some difficult years, even dropping down from the high excess layers it wrote to fill some of those lower layers vacated by the local market. Hiscox, for example, has an unbroken record of continuing to underwrite Australian D&O risk since first entering the market in 2015.
Managing the volatility
That doesn’t mean that Australia D&O risk doesn’t have its challenges as the volume of securities class actions would suggest and no one is saying it’s a straightforward class to underwrite. Compared to a market like the US, for example, where there is plenty of data available to develop a view on frequency, severity, average defence costs and settlement costs, that information is less available in Australia. It’s often a case of seeing an organisation perform well until suddenly it isn’t with little warning that its fortunes were about to change; an unpredictability which creates a challenge for the D&O underwriter. But alongside that corporate volatility, there are secure and predictable guard rails in place. Australia can justifiably claim to have some of the very best corporate governance, regulators, and legislative frameworks you’ll see anywhere in the world. They really are exceptional and reflect the demands the government and the people of Australia place on their corporations.
Australia is not the US
What it all adds up to, in my view, is in the ability to really understand Australian businesses and the regulatory environment they operate in. The worst thing that an underwriter can do is to think of Australia, its businesses and its class action regime, as simply a scaled down version of the US market. Australia is different. Australian companies are different, and taking time to understand those differences and listening to the challenges Australian businesses and their directors and officers face, is a critical part of the underwriting process.
London truly excels at understanding Australian corporate culture, and this sets us apart from any other international market. Take just one aspect of underwriting such as pricing, where a huge amount of work goes into finding a premium that accurately reflects the D&O risk. We have our own pricing analyst here in the D&O team at Hiscox who spend a lot of time working on our pricing models and taking an in-depth dive into the Australian market when it comes to understanding and interpreting the frequency and severity of losses. This is certainly the first time as an underwriter I’ve ever worked so closely with pricing.
Another strong focus is on our wordings. We’re working hard to make sure we have a D&O wording that is bespoke to the unique challenges faced by Australian businesses and not generic to companies wherever they are in the world.
London also has a history of investing both money and time when it comes to Australian D&O risks. That investment includes the use of local Australian law firms and expertise, when alternatives could be cheaper, as well as travel time and expense for London based underwriters spending time in Australia to personally meet clients, while also making time to see those same clients when they travel to the UK. In addition, a focus on continuous professional development in areas such as attending relevant conferences is a constant for London underwriters looking to keep on top of Australia’s unique D&O risk profile.
An optimistic outlook
What this all adds up to is a powerful combination of London based D&O expertise and insurance support for Australian businesses. And, provided we continue to make sure we see Australia as the separate and unique market that it is, while doing as much as we can to communicate the value London brings as well as innovating and evolving the D&O cover we offer, we can be optimistic about London continuing to play a major role in the long-term support of Australian businesses and their directors and officers.
