Australia

In this chapter of our Annual Insurance Review 2023, we look at the main developments in 2022 and expected issues in 2023 for Australia.

Key developments in 2022

Australia has not been immune to the disruption and uncertainty that many countries are facing both locally and globally. While the threat of Covid-19 infections is no longer the number one concern for Australians and their governments, it has been replaced by an uncertain economic outlook (high inflation, increasing borrowing prices, falls in house prices and labour shortages), global supply chain issues, heightened awareness of cyber risks and the social contracts that prevail in the areas of wage theft, privacy and climate change. 

However, as with past economic cycles, underlying economic fundamentals are strong and export revenue in mining is close to record levels such that Government expenditure is not under the same pressure as in other nations. 

It has been a volatile 12 months for the Australian class action market. Litigation funders have seen increasing levels of regulation and new competition from plaintiff firms running new class actions on a speculative basis for contingency fees in the Supreme Court of Victoria. The change of Federal Government back in May 2022 has seen a range of foreshadowed amendments to unwind or water-down previous legislation and regulations affecting litigation funders and class actions. 

In contrast to the stance taken by the UK courts, the Australian High Court upheld the 2021 decisions in Covid related business interruptions claims, with a ruling in favour of insurers. 

Cyber risk and security has remained a top risk for corporate, government and individuals alike.  Australia has seen a number of high profile data breaches throughout 2022, including Medibank and Optus, which impacted close to 40% of Australia, bringing the vulnerability of personal data and the reality of cyber-crime into the headlines. 

In the courts, ASIC v RI Advice Group Pty Ltd [2022] FCA 496 was the first cyber security focused Australian judgment, which has become a catalyst for companies and their boards to sit up and realise that cyber security is not 'an IT issue' - it is a risk that needs to be managed and is a director duty. 
The legacy of the Financial Services Royal Commission continues, with industry-wide self-reporting and remediations schemes, and increasing regulatory pressure to audit advice provided against the existing and new ASIC regulatory guides RG256 and RG277. 

The major consumer class actions against the 'Big Four' banks and other institutions are maturing, with many now settled, including the so-called 'junk insurance' class actions against ANZ, Westpac and CBA. Others will come to trial or be mediated in 2023.
Consistent with the hardening market for Financial Advisor PI, the coverage space has seen a number of carriers litigating the scope of exclusions. Most recently the Queensland Court of Appeal applied an exclusion which referenced investments not included in the insured licensee's approved product list, where an authorised representative had recommended a non-complying product. The Court upheld that the financial advice to be covered by the policy be limited to advice on products within the list.

The construction industry faced both significant commercial pressure and a hard insurance market. The increased material and labour costs, global supply chain issues and subcontractor insolvency is threatening the viability of projects and increasing the risk of disputes and potential for public liability claims. 

The fallout of the cladding crisis continues with regulatory changes that came into effect to improve building standards, including 2022 National Construction Code. In NSW, improved standards for training and accreditation introduced by the Building and Development Certifiers Act and Regulations have come into effect. In Victoria, compliance authorities such as the VBA have shown an increased willingness to bring disciplinary action against practitioners for failure to comply with relevant standards of conduct. 

Compounding the issues in the construction industry is the state and federal government spending on large scale infrastructure projects (including road, rail and Brisbane Olympic projects) is causing further disruption to the availability of contractors and project staff. 

Australia's eastern seaboard saw unprecedented catastrophic flooding in 2022, with the NSW floods predicted to be Australia's most expensive ever natural disaster. Many regions flooded three or more times within the year, raising questions about whether some regions will be uninsurable.
Insurance industry groups have been engaging with state and federal governments to consider short and long term issues raised by catastrophic weather events, including issues around insurability and the rising cost of insurance. The scale of recent natural disasters, coupled with existing commercial pressures on the building industry is impacting the timeliness and cost of any remediation work. 

Dust disease has been an ongoing concern for insurers in the Australian market. There is continued upward pressure on damages awards in asbestos cases and reluctance from appeal courts to interfere with trial decisions in this space. 

A growing concern is disease linked to work related exposure to crystalline silica dust, particularly in Queensland. 

Various faith-based, social and government institutions across Australia continue to face claims relating to historical instances of child abuse. A high profile area, 2022 saw the largest general damages award in Australia, setting a new high watermark for future claims and in NSW, the Civil Liability Act 2002 (NSW) was amended to enable a court to set aside previous settlements of child abuse claims.

In the transport sector, 2022 saw major issues arising from port congestion around the world and Australia was not immune to the impacts of labour shortages, high demand for imported goods and Covid-affected vessel crews. This led to an increase in spoilage claims for perishable goods, increased repositioning costs and an ACCC investigation into potential collusion among lines over surcharges. 

Marine insurers have also been feeling the effects of cyclone, storm and flood damage, with loss of vessels, damage to ports and cargo, and freight train derailments following rail washouts.

What to expect in 2023

Cyber risk is expected to continue to be a top priority in 2023. With two attempts to introduce legislation around ransom payments, neither surviving the change of government, the appointment of a Minister for Cyber Security will keep this issue on the legislative agenda for 2023. 
The significant data breaches in 2022 have put the sufficiency of Australia's privacy laws under the microscope, with a push for Australia to move to the 'gold standard' GDPR. 

The deteriorating economic climate caused by inflationary pressure will also test the boundaries of when courts will permit the direct joinder of insurers. In Count Financial v Pillay, London based insurers successfully resisted joinder to proceedings under the Third Party Rights Against Insurers Act in New South Wales, a case which gives encouragement to the industry that the Australian courts will determine the application of exclusions when exercising their discretion whether to permit joinder.  Conversely, courts are increasingly open to allowing joinder of insurers rather than deprive claimants of their ability to bring claims to final determination. 

2023 is expected to sharply demonstrate the difficult balancing act that Australian directors and officers now find themselves in, with a significant increase in large insolvencies, shareholder and oppression disputes, privacy claims and class actions. 

A wild card for 2023 is the potential for class actions not only with the Privacy Commissioners but also for breach of contract and securities class actions.   

The FI market and major financial institutions, including a number of the 'Big Four' Banks are yet to reach consensus on policy response to the post-Financial Services Royal Commission consumer class actions. We anticipate that the claims on the policies will be determined in 2023 where multiple class actions have now settled or will settle early in 2023.

There is also a likelihood for increased employment claims and potential class actions arising with non-compliance with industrial instruments. There has already been an initial wave of large scale claims arising from underpayments and break entitlements, and this is expected to continue.
There is expected to be no change to the pressures faced by the construction industry, with wage and material cost inflation and ongoing high fuel prices contributing to further insolvencies across the board. 

The effect of recent legislative changes aimed at enhancing consumer protection will increasingly be felt. In NSW, courts have begun deciding practitioner liability cases under the Design and Building Practitioners Act. In Victoria, the state combustible cladding rectification authority has taken first steps to join proceedings against builders and building professionals to recover cladding remediation costs. 

While the industry is being optimistic about tapering off of price increases, the construction market remains challenging. There is likely to be considerable underinsurance given the higher construction costs and inflation.

A challenge for liability insurers will come from the ongoing emergence of the gig economy, where there is likely to be continuing litigation involving the issue of whether gig workers are employees or independent contractors. If a gig worker is deemed an employee and causes loss, their employer may be found vicariously liable for their conduct. 

Generally, climate change related weather events are expected to continue, causing claims pressure for the insurance sector. A huge number of catastrophic flood claims will continue to be lodged with insurers and, by sheer weight of numbers, greater numbers of disputes with the Australian Financial Complaints Authority and legal proceedings are expected. 

There is likely to be sustained pressure on damages awards in dust disease claims, with plaintiffs pointing to recent decisions as guideposts in settlement negotiations, and there will be a question as to the impact of Victorian reforms on contingency fees and legal costs. 

In the institutional liability space, the new 'deed set aside' legislation will be tested in early 2023. While the legislation refers to factors a court may consider, it is ultimately likely to be whatever a court considers 'just and reasonable'. This will be watched very closely to determine the scope of past settlements that could potentially be re-opened.

With the National Redress Scheme (which has a $150,000 cap) entering into its fifth year and an increase in highly publicised large civil settlements, a reduction in the number of redress claims is anticipated and an increase in those that choose to pursue their claims via civil litigation.

Plaintiff firms are increasingly using the media to publicise large settlements and judgments, and call into disrepute defendant institutions. We see this trend continuing, inflating plaintiff expectations and maximising pressure on defendant institutions and their stakeholders.

Finally, transport and marine insurers will be watching out in 2023 for a report from the Strategic Feet Taskforce to further strengthen Australia's maritime supply chain channels.

Written by Jonathan Newby, Cathryn Prowse and Keith Bethlehem

Download our full Annual Insurance Review 2023 for more insights.