Insight

Navigating Uncharted Terrain

The challenges before the Australian insurance industry.

Australian Insurance Industry Challenges
Richard Wood

Richard Wood

September 3, 2021 03:00 PM

Was there a recent ruling or precedent set that will have a national impact on this specific practice area?

The Australian insurance industry, like the global industry, is facing unprecedented challenges—some of the most difficult it has experienced in recent times. Effective and efficient risk mitigation is paramount as insurers battle increasing pressure from a number of fronts across all sectors. At the same time, in navigating through these issues, insurers have been presented with opportunities to identify new ways to service the needs of their customers.

Featuring throughout this disruptive new order are a number of key recent decisions, rulings and regulatory responses that continue to impact the risk landscape:

  • increasing cybersecurity and privacy exposures as insurers explore digital customer experience solutions
  • increasing frequency of major weather events
  • the continued prevalence of class actions in a jurisdiction already well known for being “class action-friendly”
  • implementation of new compliance requirements and regulations following the financial services Royal Commission
  • introduction of mandatory insurance requirements for design and construction practitioners
  • addressing key liability, damages and limitations relating to abuse and sensitive claims matters, and
  • prioritising the protection of the public in assessing matters involving misconduct by health professionals.

Front and centre currently is the uncertainty surrounding business interruption cover for those impacted by COVID-19, following the test case defeat in the High Court in June this year. This judgment upheld the initial 2020 NSW Court of Appeal decision, finding in favour of policyholders and denying insurers’ application for special leave to appeal. The primary decision was relevant to claims lodged across Australia.

It is estimated that more than 250,000 business interruption policies with claims valued at around $10 billion are affected. For many businesses, these policies have been tailored by their broker for their individual needs. Due to these complexities and variations, clear direction and guidance via the courts is required for decisions to be made in a fair and consistent way.

A second test case will determine a range of policy wording matters, including policy descriptions around the proximity of a COVID outbreak, how diseases are defined and regulatory requirements.

While the industry grapples with the consequences of this decision, the Insurance Council of Australia warns claims may not be finalised until the conclusion of the second test case, which is scheduled to be heard in September 2021.

Have there been any major developments or changes that could impact your clientele?

The insurance market in Australia has traditionally been a relatively attractive market for insurers – the one problem being pricing. In recent years the market has hardened considerably due to a number of factors and developments that have impacted Gilchrist Connell’s clients and the market at large.

These include:

  • uncertainties surrounding COVID-19;
  • increasing financial pressures resulting from:
    • low interest rates
    • increased claims costs arising from a raft of recent major and costly natural disasters and the associated rise in reinsurance costs
    • industry-wide decline in customer retention as Australian households continue to battle social and economic impacts of the COVID-19 global pandemic, global recession and a sluggish post-GFC recovery while facing increased insurance costs
  • harsher regulations and an increase in securities class actions as a result of the Hayne Royal Commission
  • implications of operating remote workplaces, including employment practices liability and cybersecurity as a result of COVID-19
  • issues such as cladding and increased regulation of the building industry and associated consultants, and
  • increase in litigation funding of class actions, with two act ions currently in train involving major onshore insurers while awaiting the outcome of September’s second COVID-19 test case.
The risks associated with remote working have created new opportunities for cyber-attackers, including phishing and social engineering events. In addition, claims relating to coverage under cyber, media, and technology errors and omissions policies have increased due to the pandemic.”

The key implications of these impacts are a continued hardening of the market and a shrinking appetite for Australian risk. These pressures have resulted in more restrictive coverage terms but have enabled those carriers with appetite to obtain more realistic pricing. For the first time since the early 2000s, insured entities are faced with a real dilemma as cover is more restricted, more expensive, and in some cases almost impossible to obtain. Brokers have their work cut out for them in many areas.

While COVID-19 initially caused a spike in travel and business interruption claims (before the pandemic exclusions were quickly updated and tightened where necessary), its impact on the way we work, with most adopting a hybrid working model combining home and office locations, has also led to employer risks and demand for legal services. We have experienced this effect firsthand at Gilchrist Connell, as our national employment practices liability and workplace practice teams have experienced extraordinary growth over the last 18 months.

We have also seen growth in cyber claims as the demand for specialist legal expertise has increased. The risks associated with remote working have created new opportunities for cyber-attackers, including phishing and social engineering events. In addition, claims relating to coverage under cyber, media, and technology errors and omissions policies have increased due to the pandemic.

Regulatory change and social attitudes have also led to an increased frequency of environmental claims. The combined impact of the hardening market and the pandemic will mean some covers will be affected by new regulations. Insured entities need to fully evaluate their risk management as insurance coverage might not provide the complete protection it once did. All these factors are expected to lead to an increased demand for legal services as more issues arise relating to the availability and scope of insurance programs.

These major impacts have meant that insurance lawyers have been exceptionally busy. All indications point to this hardened market remaining in place for the foreseeable future. To meet the increased demand, we have experienced significant growth across the country, increasing our workforce by 30% in recent months.

Looking forward for our insurer clients, a focus on managing costs, claims ratios and margins driven by the desire to increase profitability will result in price rises and limited scopes of cover. These responses are likely to have wider business and economic implications, and for the industry, reduced capacity may require brokers and insureds to work harder to source appropriate coverage. This process, in turn, might give rise to still more disputes. There are, however, already some signs of opportunity, with new carriers gently looking to explore markets that were previously too poorly priced for them. The correction in this regard will continue to translate to opportunities for insurers.

We expect this to lead to an upsurge of demand for legal advice around navigating the new risk landscape, including assisting insurers to reconsider the levels of risk they are prepared to bear and deliver more flexible, cost-effective, tailored insurance policies rather than relying on off-the-shelf insurance solutions.

Is there thought leadership your firm is uniquely poised to offer others in this industry?

We believe in investing in strengthening our expertise in each area of insurance law to provide our clients with market-leading advice and tailored solutions to achieve the most commercially beneficial outcome. We also believe invaluable knowledge transfer, sharing industry insights, legislative updates, market trends, and threats that could impact our clients.

Covering all areas of insurance law, we share our insights through multiple channels, including publication for authoritative articles, updates, and practical guides, and specifically tailored educational sessions and programs. We regularly contribute content and expert commentary to Australia’s major insurers, business press, insurance, and legal titles and media and frequently present at influential industry forums.

Consistently recognised and ranked in the Best Lawyers in Australia, Gilchrist Connell is proud to have a team of leading insurance specialists with expertise in all areas of insurance law spanning the country and servicing our clients all over Australia and abroad.

Recognised as a pre-eminent leader in the Australian insurance industry, Richard Wood is the Managing Principal of Gilchrist Connell. A true expert in insurance law having practiced exclusively in area for over 30 years, Richard provides his clients with unrivalled experience across the entire insurance law sphere, including general liability, financial lines, professional indemnity, general and product liability, construction, property, personal injury life and total and permanent disability claims and directors’ and officers’ liability, as well as advising on claims and risk management issues and recoveries across all claims types.

Related Articles

Checks and Balances


by Michael Sullivan

Ensuring probity and above-board behaviour in both the public and private sector is always important—and that importance can be particularly stark during a major crisis like the pandemic. An overview of a year’s worth of commissions and inquiries.

Australian Commission Governance Structure

The Partnership Opportunity


by David Harley, Shaun Whittaker, Tony Rutherford and Troy Lewis

Doing well and doing good need not be mutually exclusive. Housing developments that provide both solid long-term returns and positive social outcomes, often through public-private partnerships, are an idea whose time has come throughout Australia.

Housing Developments in Australia

The Great Debate Between Agriculture, Mining and Environment


by Rebecca Hoare

Can we really have it all?  The pursuit of the harmonious intersection of Australia’s agricultural and resources industries and the environment.

Australia Agriculture, Mining & Environment

"Lawyer of the Year"


Black and white headshot photo of woman lawyer

Jennifer Arnett

Insurance Law

Boulder, CO

2024

3 Key Considerations for Navigating Complex Insurance Litigation in Florida


by Best Lawyers

Insurance litigation in Florida can be very complex. Issues related to insurance regulations have created an especially litigious environment. Learn more here.

Living room in a house flooded with water

The Best Lawyers in Australia™ 2024 Launch


by Best Lawyers

Best Lawyers is excited to announce The Best Lawyers in Australia™ for 2023, including the top lawyers and law firms from Australia.

Australian Parliament beside water at sunset

Australasian In the Law: Legal News From Our Recently Awarded Countries


by Gregory Sirico

Best Lawyers highlights the top legal stories out of Australia, New Zealand, Japan and Singapore, in conjunction with the 2024 Australasian launch.

Suited man sitting at table using a tablet

Announcing The Best Lawyers in Australia™ 2023


by Best Lawyers

The results include an elite field of top lawyers and firms from Australia.

The Best Lawyers in Australia™ 2023

Celebrating Lawyers From Around the World: Annabel West


by Rebecca Blackwell

We are honoring the achievements and career of Annabel West, lawyer and wife of South Australian Premier Peter Malinauskas.

Accomplished Australian Lawyer Annabel West

Don’t Let Insurance Companies Take Advantage of You


by Christopher J. Marzzacco

Find out how you can avoid being taken advantage of by insurance companies. Learn the tactics they use to underpay injured victims and what you can do to fight back.

Don’t Let Insurance Companies Take Advantage

Blurred Lines


by Andrew Kirby

Where does responsible lending end and unconscionability begin? Australian courts have come to vastly different conclusions. An overview of current case law.

Australian Courts Assess Loan Repayment

A Climate Duty


by Lara Douvartzidis and Samantha Daly

Converging trends in Australia and the Netherlands: reasonable foreseeability in climate change law and other novel developments.

Climate Change Law in Australia

When Do You Need To Hire a Car Accident Attorney


by Jay S. Knispel

Injured in a car accident? Here are seven major signs you need to hire a car accident lawyer for your case.

Seven Signs To Hire a Car Accident Attorney

Announcing the 2022 Best Lawyers™ in Australia


by Best Lawyers

The results include an elite field of top lawyers and firms.

Announcing the 2022 Best Lawyers™ in Australi

What Does It Take to Join The Best Lawyers in Australia?


by Best Lawyers

We asked The Best Lawyers in Australia: What advice would you give your younger self?

Nominate a Lawyer in Australia

Working With Changes


by Best Lawyers

Carolyn Pugsley, the Joint Global Head of Practice for Corporate, Australia at Herbert Smith and Freehills, discusses policy changes affecting the M&A market in Australia as well as the impact of the pandemic on the practice.

An Interview With Herbert Smith and Freehills

Trending Articles

Announcing the 2023 The Best Lawyers in America Honorees


by Best Lawyers

Only the top 5.3% of all practicing lawyers in the U.S. were selected by their peers for inclusion in the 29th edition of The Best Lawyers in America®.

Gold strings and dots connecting to form US map

Announcing the 2022 Best Lawyers® in the United States


by Best Lawyers

The results include an elite field of top lawyers listed in the 28th Edition of The Best Lawyers in America® and in the 2nd Edition of Best Lawyers: Ones to Watch in America for 2022.

2022 Best Lawyers Listings for United States

2021 Best Lawyers: The Global Issue


by Best Lawyers

The 2021 Global Issue features top legal talent from the most recent editions of Best Lawyers and Best Lawyers: Ones to Watch worldwide.

2021 Best Lawyers: The Global Issue

The U.S. Best Lawyers Voting Season Is Open


by Best Lawyers

The voting season for the 31st edition of The Best Lawyers in America® and the 5th edition of Best Lawyers: Ones to Watch® in America is officially underway, and we are offering some helpful advice to this year’s voters.

Golden figures of people standing on blue surface connected by white lines

How To Find A Pro Bono Lawyer


by Best Lawyers

Best Lawyers dives into the vital role pro bono lawyers play in ensuring access to justice for all and the transformative impact they have on communities.

Hands joined around a table with phone, paper, pen and glasses

What the Courts Say About Recording in the Classroom


by Christina Henagen Peer and Peter Zawadski

Students and parents are increasingly asking to use audio devices to record what's being said in the classroom. But is it legal? A recent ruling offer gives the answer to a question confusing parents and administrators alike.

Is It Legal for Students to Record Teachers?

How Palworld Is Testing the Limits of Nintendo’s Legal Power


by Gregory Sirico

Many are calling the new game Palworld “Pokémon GO with guns,” noting the games striking similarities. Experts speculate how Nintendo could take legal action.

Animated figures with guns stand on top of creatures

The Best Lawyers in Australia™ 2024 Launch


by Best Lawyers

Best Lawyers is excited to announce The Best Lawyers in Australia™ for 2023, including the top lawyers and law firms from Australia.

Australian Parliament beside water at sunset

Inflation Escalation


by Ashley S. Wagner

Inflation and rising costs are at the forefront of everyone’s mind as we enter 2023. The current volatile market makes it more important than ever to understand the rent escalation clauses in current and future commercial lease agreements.

Suited figure in front of rising market and inflated balloon

Best Lawyers: Ones to Watch in America for 2023


by Best Lawyers

The third edition of Best Lawyers: Ones to Watch in America™ highlights the legal talent of lawyers who have been in practice less than 10 years.

Three arrows made of lines and dots on blue background

A Celebration of Excellence: The Best Lawyers in Canada 2024 Awards


by Best Lawyers

As we embark on the 18th edition of The Best Lawyers in Canada™, we are excited to highlight excellence and top legal talent across the country.

Abstract image of red and white Canada flag in triangles

8 Different Types of Criminal Defenses in Law


by Best Lawyers

Learn about the different types of criminal defenses available in law, including innocence, self-defense, insanity and more. Protect your rights today.

Silver handcuffs laying on finger printed papers

Wage and Overtime Laws for Truck Drivers


by Greg Mansell

For truck drivers nationwide, underpayment and overtime violations are just the beginning of a long list of problems. Below we explore the wages you are entitled to but may not be receiving.

Truck Driver Wage and Overtime Laws in the US

The Upcycle Conundrum


by Karen Kreider Gaunt

Laudable or litigious? What you need to know about potential copyright and trademark infringement when repurposing products.

Repurposed Products and Copyright Infringemen

Choosing a Title Company: What a Seller Should Expect


by Roy D. Oppenheim

When it comes to choosing a title company, how much power exactly does a seller have?

Choosing the Title Company As Seller

The 2024 Best Lawyers in Spain™


by Best Lawyers

Best Lawyers is honored to announce the 16th edition of The Best Lawyers in Spain™ and the third edition of Best Lawyers: Ones to Watch in Spain™ for 2024.

Tall buildings and rushing traffic against clouds and sun in sky