Insurance companies are increasing their scrutiny of company boards and adherence to disclosure requirements to weed out bad risks, says broker Aon Australia.
This comes as insurers providing liability cover to directors and officers have raised premiums by as much as 300% following a sharp rise in the number of share price-related class actions launched against Australian companies, reported The Australian Financial Review.
Mr Eden Fletcher, director of the financial services group at Aon Risk Solutions, said: "We're spending a lot of time having one-on-one meetings with clients and insurers around really allowing insurers to interrogate the corporate governed and how this is all managed internally."
"There is a strong focus at the moment around relationships with the regulators. We are seeing a lot of activity there. [And] particularly in large, complex organisations, if something goes wrong, how does that get reported to the board? How does the board then make a decision around whether they notify the market or not?"
He said that generally, where there has been a long-term relationship, most insurers are trying to support clients, regardless of how they are looking.
Industry experts told The Australian Financial Review that class actions, often related to alleged failures to meet continuous disclosure obligations, had tripled in the past five years, pushing up directors and officer insurance premiums.
For instance, QBE last month agreed to pay A$132.5 million (US$105 million) to settle a class action suit lodged in 2015 by shareholders angry about a fall in the company's share price in 2013 because of a profit downgrade. It is understood the settlement will be covered by the insurer's own insurance and provisions.
Mr Fletcher said the D&O market has not hardened to the point where companies were unable to get cover.
"It's fair to say that globally capacity is available; so while we are seeing a bit of retraction in appetite from insurers there's certainly an ability to obtain cover. And on that basis we don't really categorise it as being a hard market," he said.