Australia: Class actions will continue to increase despite regulatory change
Class actions in Australia will be the subject of regulatory change. The Federal Government will formally respond to, and most likely adopt, many of the reforms recommended by the Australian Law Reform Commission in 2019. This will include introducing contingency fees for class action proceedings issued in the Federal Court. New South Wales will follow suit to avoid becoming irrelevant in the class actions space. It is likely the Federal Government will reject Recommendation 24 regarding a review of the substantive law governing securities class actions on the basis that the legal framework is operating fairly and efficiently. Class actions filings will continue to increase with consumer and government class actions driving those increases. Between 15 and 20 securities class actions will be commenced in line with recent historical averages. Directors and officers will be more frequently joined to securities class actions against small to mid-cap ASX listed entities due to the lack of entity cover and the desire to access insurance. We may see directors and officers joined as third parties to securities class actions by the entity being pursued as another means of shifting the economic burden from the uninsured entity to D&O insurers. There will be more entrants to the plaintiff class action market as contingency fees incentivise larger commercial firms that traditionally acted for defendants taking on plaintiff briefs.
Australia: Watershed year ahead for climate change legislation
2023 will be a watershed year for climate change legislation at both a state and federal level. Focus will be on compulsory disclosure of climate risk by public companies, carbon credit regulation and budgetary commitments to renewable energy and environmental sustainability initiatives. Corporate Australia will continue to be challenged by public interest groups and corporate regulators over environmental risk disclosure, with greenwashing litigation likely to increase exponentially. Net zero commitments will come under the greatest scrutiny. Superannuation funds and institutional investors will also continue to be challenged over their green credentials, their due diligence into environmental disclosures by portfolio companies and how they are balancing the long-term interests of members in creating a sustainable future while meeting short-term objectives regarding return on investment.
Australia: Microplastics will create systemic risks across insurance lines
The prevalence of microplastic pollution puts the risk of insurance exposures at a systemic level. A report by Australia’s Mindaroo Foundation, researched with United Nations support, predicts that plastic industry litigation could cost US$20bn over the next eight years in the US alone. Microplastic pollution impacts our marine and land environments. It can lead to environmental and loss of income claims, as well as product liability claims involving microplastic-shedding products. As a corporate sustainability risk it also poses a liability threat. There are also related risks to human and animal health, which could lead to personal injury claims, workers compensation claims (particularly for workers processing nylon flock, plastic fibres and synthetic textile) and product liability claims. Unlike silica dust, microplastics are a group of substances identified generically, rather than individually. This is likely to lead to issues of causation and liability, as well as highly contested expert evidence regarding economic loss.
Australia: Reforms to the Australian Privacy Act will be implemented
Following the spate of high-profile breaches affecting large organisations in Australia, changes and reforms to the Australian Privacy Act are due to be urgently implemented in 2023. These changes have been flagged since 2019, but have inexplicably remained on the backburner until now. While there is much fanfare about the scope of these reforms, particularly around increased penalties, we are likely to see the Privacy Act being more closely aligned with global privacy laws. In addition to greater penalties being levied for privacy breaches, we will see previously exempt small businesses being subject to the Act, individuals having greater rights (including a right of direct action for privacy interference) and regulators having greater enforcement powers. We will also see heightened scrutiny of organisations and the way personal information is being collected, held and disclosed. These changes will consequently result in higher risks for insurers, particularly for third party liability claims, class action lawsuits and directors’ and officers’ liability. As the third-party liability landscape continues to evolve, some specific risks under cyber policies may need to be carved out into stand-alone policies to cater for specific phases of a cyberattack. This may include separate policies for first party costs and third party cyber liability policies, or specific policies/endorsements for ransomware cover.
Australia: The cyber blame game will continue and recoveries will increase
We will continue to see an increase in claims against IT professionals following cyber events, as well as a rise in software provider cyberattacks that result in more significant aggregation risk for insurers. Although these claims arise in several ways, we are likely to see more claims against managed services providers (MSPs) and cloud services providers (CSPs) that are responsible for hosting the data of their clients, and are themselves a victim of a cyberattack. In this way, the cyberattacks gain a greater impact surface to leverage against the victims. These claims are usually founded in an allegation that the MSP or CSP did not have adequate cyber-security measures in place to prevent attacks. It is often also alleged that the MSP and CSP did not comply with its contractual obligations regarding backups. The affected clients typically seek compensation for the costs of responding to the incident, reconstituting/recovering their data and business interruption. We are also seeing an increased appetite among cyber insurers for subrogated recoveries against IT professionals, as cyber insurers look to mitigate their costs of assisting insureds in response to cyber incidents.
Australia: Green hydrogen will fuel a new energy insurance market
Analysts have estimated the green hydrogen market could be worth US$10trillion by 2050. Given the market potential and the many green hydrogen projects already planned, including the US$32bn Asian Renewable Energy Hub in Australia’s Pilbara region, energy insurers should expect to see a significant increase in global demand associated with constructing and operating green hydrogen plants and pipelines. Green hydrogen developments are a positive news story for the world. However, the new technology comes with risks that underwriters will need to consider carefully. For example, green hydrogen is highly flammable and is difficult to store and transport. While these issues are being addressed through extensive global research and development, insurers will need to stay on top of these developments. This includes monitoring how the marine industry embraces ammonia, a fuel derived from green hydrogen, as a potential transportation solution.
Australia: There will be positives and negatives to battery technology
Efficient power storage is a key element of a low-carbon economy. Lithium-ion batteries are proving a popular solution as they are rechargeable, have a high energy density, no memory effect and low levels of self-discharge. However, they are also risky as they contain flammable electrolytes. Manufacturing defects, physical damage/abuse and incorrect charging have been linked to uncontrolled thermal venting/ runaway of cells. Lithium-ion batteries have been linked to many fires, including a significant fire incident involving a Tesla battery project in Australia. These fires are intense and difficult to bring under control, so determining causation can also be complex. Lithium-ion battery storage and transportation, including issues associated with dangerous goods classifications for sea carriage, and disposal are other issues that are causing concern for insurers. While the search continues for ways to make battery technology more stable, risks are being managed with quality products, active maintenance and fire prevention strategies.
Australia: Cyber piracy will be a key concern for shipping companies
Cyber risk is now front and centre for the shipping industry following numerous high profile incidents, such as the Petya cyberattack, the 2020 cyberattack on CMA CGM’s systems, the ransomware attack against the Colonial oil pipeline in the US in May 2021 and, in March 2022, the cyberattack on global logistics company, Expeditors. The issue is also a key focus of regulatory guidance from the International Maritime Organisation. With the increased interconnectivity between vessels and shore-based systems, use of automated systems and the development of unmanned or autonomous vessels, the spectre of a significant physical damage loss at sea looms larger. To date, most cyberattacks in the shipping industry have focused on onshore operations, but it is conceivable that cyber criminals could take control of vessels at sea. A common vulnerability is the industry’s generally low level of preparedness for cyber incidents, including low levels of risk awareness, ineffective procedures and high levels of human error in offshore security breaches.
Australia: Regulators and financial lines insurers alike will turn their gaze on crypto-assets
2022 was characterised by insurers beginning to offer products for the unique specialist risks represented by the crypto-asset ecosystem (including coin issuers and digital currency exchanges) after many years of underinsurance. The kinds of insurance that have become available include many of the traditional policies a corporate entity would be expected to purchase, but with a purpose-built focus, such as crime, professional indemnity and D&O insurance. Traditionally, insurers have been sceptical of these risks, particularly due to regulatory uncertainty about whether crypto-assets will be treated as regulated ‘financial assets’ or not. With international regulators casting a closer eye over crypto-asset offerings as time goes on and, in many jurisdictions, working towards enacting specific legislative amendments, 2023 may represent the perfect storm for the captive market of crypto-asset providers to be seized on by financial lines insurers. The risks associated with these assets vary in maturity across jurisdictions, however increased regulatory certainty will steadily temper this and give insurers more confidence to enter the market.
Share Twitter EmailChina: Change is in sight and supply chains will diversify
2023 will be a year of adjustment for China itself and China’s economic relations with the West. Although Xi Jinping has secured a norm breaking third term as the General Secretary, China’s leadership reshuffle is on-going and the new government (including the Premier who leads the Central Government) will not be in place until March 2023. It remains to be seen what policies the new leadership will pursue, especially towards the protection of private businesses in China, market access for foreign companies, the plan to unify with Taiwan, and the US-China relationship. At the same time, China’s ‘Zero-COVID’ policy is proving to be a burden for China’s economy (although it helped with growth before the Omicron variant) and is hurting global trade as a whole. This is illustrated by the recent delay of iPhone shipments due to COVID restrictions at the Foxconn plant in Henan Province. We expect multinational manufacturing companies (including Chinese companies) to continue to diversify their supply chains. However, it would be wrong to draw a hasty conclusion that China and the West will decouple: China remains one of the largest markets in the world and a manufacturing powerhouse.
Share Twitter EmailNew Zealand: Geographical isolation could cause a supply chain headache and increase product liability claims
New Zealand is geographically isolated from much of the world. With great isolation comes great vulnerability for product manufacturers, distributors and retailers. In 2023, supply to New Zealand will continue to be heavily affected by shipping delays, long lead times and port congestion. Shipping routes to New Zealand may become less frequent as disruption results in shipping companies prioritising more profitable routes, which often involve core customers who are located closer to the exporters. With delays and shortages, manufacturers may be tempted to use out-of-specification parts and ingredients more frequently. If they do, this will increase the risk of product recalls, product liability claims and cross-border recovery issues. As New Zealand has limited onshore industries, it may also become increasingly difficult to source alternative parts and products. This will result in an increase in the cost of product recalls, as replacement and repair options are likely to become more difficult to source and may take some time to arrive in the country.
New Zealand: Difficult business conditions will increase exposure for NZ auditors
Many New Zealand businesses are struggling. They are either still nursing a COVID-19 hangover or are battling the change in consumer habits caused by the lockdowns and remote working. They see no reprieve in the short-term outlook either; consumer demand over the next 12-18 months is likely to decrease with the rising mortgage rates; and pent-up demand for travel, now borders have fully re-opened, will use a portion of their discretionary spending. We predict more audit negligence claims as insolvency impacts the worst affected businesses and auditors face claims that they should have identified the breaches.
New Zealand: Tax claims anticipated from new trust disclosure rules
From the 2022 income year, all active domestic trusts in New Zealand are required to comply with the new financial reporting and disclosure rules. However, Inland Revenue can request disclosure back to the 2015 income year. The objective of the new rules appears to be to facilitate the collection of data on how New Zealanders are using trusts following the personal tax rate of 39% for taxpayers earning in excess of NZ$180,000. It is likely the government will share the data with overseas tax jurisdictions where it has a double tax agreement in place. There are about 40 countries involved, including the USA, Australia, UK, India, Singapore and Hong Kong. We expect ensuing investigations may lead to an increase in claims against accountants and lawyers who have been advising clients on tax efficiency.
New Zealand: Intra-family house purchases will produce claims
Due to the sustained inflation in the housing market in New Zealand over the past 8-10 years, many first home buyers have only been able to purchase homes with help from their parents. Parents can do this in several ways, including using the equity in their own home, offering a cash gift or providing a guarantee for the loan. Where this has occurred, the same solicitor has often acted for both the parents and children. We predict further claims arising out of disputes between the children and parents, including disciplinary complaints alleging breaches of the conflicting duties rules in the Lawyers: Conduct and Client Care rules.
New Zealand: Wholesale investment offers and self-certification are likely to lead to claims
New Zealand’s Financial Markets Authority (FMA) has completed a well-publicised investigation into the use of the wholesale investor exclusion, investor self-certification and the practices of a number of property-related investment firms. The FMA found multiple instances of financial advisers confirming eligible investor certificates where there were no grounds to do so. We predict the FMA will start to refer more claims to the Financial Advisers Disciplinary Committee for breaches of the financial advisors’ Code of Professional Conduct.
Share Twitter EmailSingapore: The sky over Indonesia will turn brighter post–pandemic
2023 is set to herald further recovery in Indonesia’s aviation sector. According to Indonesia’s Central Statistics Bureau, during the period of January to August 2022, the number of international passenger flights increased by a staggering 788% compared to the same period in the preceding year. The Official Airline Guide has identified Indonesia as the most significant air market in South East Asia, recording 10 million seats in October 2022 which stands at 70% of its 2019 capacity level. The demand for passenger seats is expected to continue to rise. However, with some reduction currently in terms of the Indonesian fleet due to repossessions by lessors, we may see pinch points in terms of passenger demand outstripping capacity. Many local airlines have indicated an intention to increase the number of aircraft in their fleet over the next few years, with some looking to expand their network by adding more international routes. Travel insurers may expect a boost in sale of their products and similarly, aviation insurers with interest in the region should anticipate a rise in number of flight operations and the related potential for claims.
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