Recent developments

In the wake of significant corporate collapses, the commercial and legal environment both within and beyond Australia has undergone a period of substantial change.

The insurance industry continues to confront consolidations, insolvencies and overall capital stability.

Regulators around the world are playing an increasing role in the insurance industry not only in the licensing arena, but also in the products that are available and the manner in which they are made available, for example, financial reinsurance and contingent commission agreements. The breadth, suitability and availability of insurance and other risk transfer products to finance risks have, as a result, become even more complex as well as commercially important to the corporate world.

Accountability for insurers and others involved in the insurance industry has increased significantly and with it a climate for litigation has emerged.There are many factors influencing this change:

• Following the investigation by the Royal Commission into the collapse of HIH, regulators including the Australian Prudential Regulation Authority (APRA) and the Australian Securities & Investments Commission (ASIC) have become more involved in the operation of the insurance market. A number of former directors and officers of FAI and HIH have been jailed and disqualified from holding a senior insurance role in a licensed general insurer or an authorised NOHC (non-operating holding company). Financial reinsurance is under scrutiny as are discretionary mutual funds. Similarly, the Attorney General of New York, Eliot Spitzer, has focused on the industry and its practices in an unprecedented manner, as was demonstrated by his suit in the New York State Court against Marsh & McLennan Companies, Inc. The focus of regulators and others on insurance and the way in which the market operates has implications for all stakeholders in the industry.
• Directors, officers and management have never been more accountable or more vulnerable to potential claims. Like any other contract, the breadth of an insurance policy depends on the terms of the contract agreed by the parties at its inception, together with the significant and specialised body of insurance law directed to an insurer’s (and insured’s) obligations. We are finding, however, that the adequacy and breadth of corporate insurance is often ignored until too late, if not until a claim is made or anticipated.
• Class actions are generating an increased number of claims which are much larger, more complex and more expensive to resolve than the traditional claims faced by insurers and their insureds. This has clear implications for the premium, scope and terms of cover likely to be offered by insurers in the future, especially for those sectors which are more likely by their activities to attract class actions.
• The introduction of proportionate liability reforms in Australia will need to be considered. This particularly relates to drafting commercial and professional service contracts and also in considering the best approach and likely outcomes of litigation involving a number of wrongdoers.