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Financial lines claims trends
As Australian businesses face an increasingly complex risk environment, understanding the trends and insights in financial lines claims is critical for business leaders.
Financial lines insurance, covering management liability insurance, and other specialty areas, plays a vital role in protecting companies from financial loss due to claims made against them.
SME’s are particularly vulnerable to these risks, especially with rising litigation and regulatory scrutiny. Insights from Berkley Insurance Australia highlight some of the key concerns, common mistakes, and best practices for businesses1.
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Rising claims in management liability insurance
Directors and Officers (D&O) liability claims are on the rise, driven by increasing litigation and regulatory investigations.
Business leaders should be aware of the growing complexity in regulatory frameworks, particularly as new laws (such as Australia’s mandatory climate reporting) hold directors accountable for a wider range of responsibilities.
Claims are more frequently arising from regulatory breaches, mismanagement, and even environmental obligations. Leaders must ensure robust governance structures and compliance protocols to protect both their personal and company’s assets.
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Cyber risks and professional liability claims surge
Berkley’s analysis points to a significant rise in cyber-related claims across various sectors, with businesses facing increasing risks of data breaches and social engineering attacks.
Cyber incidents are proving costly, not only due to the immediate financial impact but also through liability claims brought by third parties whose data is compromised. This is particularly concerning for medium-sized businesses that may lack the robust cybersecurity infrastructure of larger organisations. Berkley emphasises that cyber insurance has become an essential line of defence, providing coverage for both direct financial losses and the costs of legal liability following a cyber incident.
However, according to research from the Actuaries Institute2, there are significant gaps in Australian cyber insurance coverage. Their report found that many businesses are underinsured, with limited coverage that may not fully account for evolving cyber risks such as ransomware attacks and business email compromise. Moreover, the report reveals that even among those with cyber insurance, many organisations do not fully understand their policies, leaving them vulnerable to uncovered risks. This gap underscores the importance of not only securing comprehensive cyber insurance but also ensuring that businesses are fully informed about what their coverage entails.
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Berkley emphasises that cyber insurance has become an essential line of defence, providing coverage for both direct financial losses and the costs of legal liability following a cyber incident.
The impact of economic uncertainty on claims frequency
Economic instability, exacerbated by inflation, interest rate hikes, and global supply chain disruptions, has contributed to the rising frequency of financial lines claims.
Businesses facing financial challenges may be more susceptible to insolvency risks or disputes over contracts and services. Leaders must prioritise financial risk management strategies, including reviewing contracts, maintaining adequate cash flow, and ensuring business continuity plans are in place.
Mitigating risks with proactive risk management and the right business insurance
Business leaders need to adopt proactive risk management practices to reduce exposure to financial lines claims. This involves regularly reviewing business insurance coverage, staying informed about regulatory changes, and implementing strong governance and compliance measures. Equally important is fostering a workplace culture of transparency and accountability.
Staying on top of financial lines claims trends is essential for SME’s aiming to protect their operations and leadership. With the rise of D&O claims, increasing cyber risks, and heightened scrutiny over transparency and fraud, Australian business leaders must take proactive steps to mitigate these risks. By doing so, they can safeguard their companies from financial and reputational damage while navigating an increasingly complex regulatory environment.
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References
- Financial Lines Claims Trends and Insights, Berkley Insurance Australia, 2024
- Cyber Risk and the Role of Insurance, Actuaries Institute, 2022
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