16 October 2017
The Insurance Council of Australia (ICA) has called for class action regimes to be made more efficient and cost-effective, as an increase in securities-related claims affects the market for directors' and officers' (D&O) cover.
"The growth of litigation funding and class action entrepreneurialism, including the use of closed classes, has seen more speculative claims and hastily prepared proceedings," ICA says in a submission to a Victorian Law Reform Commission review.
"The introduction of a well-designed and robust certification process, as used in several overseas jurisdictions, would help address these issues."
The Victorian Law Reform Commission last week published submissions on a consultation paper about litigation funding and group proceedings. A final report is due by March 31.
ICA says the average securities class action can cost $50-$70 million, while the Australian D&O insurance market's premium pool is only $280 million.
"There were four securities class actions issued in the first quarter of [this year], potentially draining the entire annual D&O premium pool," it says.
"Not surprisingly, the impact of securities class actions has seen insurers operating in Australia reduce their risk appetite in the D&O insurance market, which is having a real impact on both the availability and affordability of this type of insurance product."
ICA's submission says the criteria for starting a class action should be increased, with a certification process introduced to prevent multiple actions for the same circumstances and to ensure various potential problems are tackled at the outset.
A pre-commencement hearing process could determine whether costs and fees to be charged by funders and lawyers are appropriate, helping to protect the class' interests.
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