Directors' and officers' premiums on rise due to class action payouts

INCREASING payouts in shareholder class actions are pushing up premiums for directors' and officers' insurance.

The total value of class action settlements reached $506 million last year, which was up from about $200 million in 2007, according to a report by the law firm King & Wood Mallesons.

With class actions becoming more common and with increasing responsibilities for directors under new regulations, insurers say directors' and officers' insurance is becoming less profitable for them.

This forces them to reduce limits or increase premiums.

Some directors have already started increasing their indemnity, says Julie Hamilton, a national directors' and officers' insurance specialist at Aon Risk Solutions.

While the cost of insurance has not increased substantially - because there are still many willing insurers in the market - she warns this may not last.

"While insurer competition is continuing to suppress rates, some insurers are testing the waters by seeking opportunities for modest rate increases where circumstances allow," she said.

Some directors of ASX-listed companies have recently increased their indemnities after benchmarking their policies against peers and claims data.

Directors who specifically chose not to take coverage against class actions could get a discount, Ms Hamilton said.

A spokesman for insurer CGU confirmed the market remained competitive but said the company was "keeping a watching brief on the issue and is closely monitoring claims costs".

"Claims payouts for directors' and officers' insurance have also risen," he said.