Mandatory insurance calls for ASX-listed companies

22 January 2018

Andrew Watson, the National Head of Class Actions and a Director of Maurice Blackburn Lawyers, has called for mandated levels of directors and officers (D&O) insurance for companies listed on the Australian Securities Exchange (ASX).

Mr Watson said the concept would have the dual benefit of addressing concerns the insurance industry hold about pricing premiums, and most importantly ensuring proper protections for shareholders who were exposed to corporate misconduct.

“Companies listed on the ASX should be required to have a minimum of $50 million directors and officers insurance, with companies in the ASX200 needing to meet a higher threshold of $100 million, rising again for ASX100 companies to $150 million,” Mr Watson said.

“Often the levels of insurance companies have is woefully inadequate, as we saw recently in relation to shareholders affected by the Slater and Gordon collapse.

“Given companies in the ASX100 have a minimum market capitalisation of $1.7 billion, mandating insurance at these modest levels would be appropriate and would help create a better-functioning D&O market.”

Mr Watson said that there appeared to be a paucity of information supporting claims D&O insurance premiums had truly increased by rates reported in some circles, in clear contrast to the empirical evidence that clearly demonstrated a miniscule proportion of ASX-listed companies ever found themselves facing a shareholder class action.

“For the 25-plus years that we’ve had class actions in Australia, the independent statistics researched by Monash University has shown that less than 0.3 per cent of ASX-listed companies face a shareholder class action in any year,” he said.

“What that shows is that class actions provide an important check and balance on the misconduct of a few, which can only benefit the 99.7 per cent of companies that act within the law.

“It is why our corporate regulators in the ACCC and ASIC support the role privately funded class actions can play in enforcement of better standards, and why international legal luminaries such as Judge Jed Rakoff have previously described it as an economic boon to have proper enforcement, checks and balances on corporate conduct in a free-market.”

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