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

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

WATCH: Best Lawyers Discusses COVID-19 & Business Interruption Claims


by Best Lawyers

Three legal experts join CEO of Best Lawyers to talk about business-interruption insurance claims resulting from COVID-19 closures.

COVID-19 Panel: Business Insurance Claims

Insuring Success


by Janice Zhou

Atlanta’s 2020 Litigation/Insurance “Lawyer of the Year,” Lisa Bondurant, on leadership, learning, and how to forge a true understanding of your clients.

Lisa Bondurant

Insuring the Future


by Best Lawyers

Thomas Heitzer discusses how new technology advancements are impacting the insurance realm.

An Interview With Noerr

Uninsured Flying Objects


by Claire O'Rourke, Laura Beth Cohen and Marialuisa S. Gallozzi

As drones and other “unmanned aerial vehicles” increasingly crowd the skies, the law—and insurance policies—will have to figure out how best to bring them back safely to terra firma.

Insurance Regulations for Drones

Trending Articles

The Real Camille: An Interview with Johnny Depp’s Lawyer Camille Vasquez


by Rebecca Blackwell

Camille Vasquez, a young lawyer at Brown Rudnick, sat down with Best Lawyers CEO Phillip Greer to talk about her distinguished career, recently being named partner and what comes next for her.

Camille Vasquez in office

Johnny Depp and Amber Heard: The Best Lawyers Honorees Behind the Litigation


by Gregory Sirico

Best Lawyers takes a look at the recognized legal talent representing Johnny Depp and Amber Heard in their ongoing defamation trial.

Lawyers for Johnny Depp and Amber Heard

Announcing The Best Lawyers in The United Kingdom™ 2023


by Best Lawyers

The results include an elite field of top lawyers and firms from the United Kingdom.

The Best Lawyers in The United Kingdom 2023

Announcing The Best Lawyers in France™ 2023


by Best Lawyers

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

Blue, white and red strips

Announcing The Best Lawyers in Germany™ 2023


by Best Lawyers

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

Black, red and yellow stripes

Education by Trial: Cultivating Legal Expertise in the Courtroom


by Margo Pierce

The intricacies of complex lawsuits require extensive knowledge of the legal precedent. But they also demand a high level of skill in every discipline needed to succeed at trial, such as analyzing technical reports and deposing expert witnesses.

Cultivating Legal Expertise in the Courtroom

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

Announcing The Best Lawyers in Belgium™ 2023


by Best Lawyers

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

Black, yellow and red stripes

Announcing the 2022 Best Lawyers™ in France


by Best Lawyers

The results include an elite field of top lawyers and firms, including our inaugural Best Lawyers: Ones to Watch recipients.

Announcing the 2022 Best Lawyers™ in France

We Are Women, We Are Fearless


by Deborah S. Chang and Justin Smulison

Athea Trial Lawyers is a female owned and operated law firm specializing in civil litigation, catastrophic energy, wrongful death and product liability.

Athea Trial Law Female Leadership and Success

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

Announcing the 2022 Best Lawyers™ in Germany


by Best Lawyers

The results include an elite field of top lawyers and firms, including our inaugural Best Lawyers: Ones to Watch recipients.

Announcing the 2022 Best Lawyers™ in Germany

What If Johnny Depp and Amber Heard Had a Premarital Agreement?


by John M. Goralka

Oh, the gritty details we’re learning from the latest court battle between Johnny Depp and Amber Heard. This unfortunate airing of dirty laundry may have been avoided with a prenup. Should you think about getting one yourself?

What If Johnny Depp & Amber Heard Had Prenup?

U.K. Introduces Revisions to Right-to-Work Scheme and Immigration Rules


by Gregory Sirico

Right-to-Work Scheme and Immigration Rules in

Destiny Fulfilled


by Sara Collin

Was Angela Reddock-Wright destined to become a lawyer? It sure seems that way. Yet her path was circuitous. This accomplished employment attorney, turned mediator, arbitrator and ADR specialist nonpareil discusses her career, the role of attorneys in society, the new world of post-pandemic work and why new Supreme Court Justice Ketanji Brown Jackson represents the future.

Interview with Lawyer Angela Reddock-Wright

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?