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‘Volatility is becoming normalised’ for insurance lawyers

After the Hayne royal commission, summer bushfires and now COVID-19, lawyers in the insurance space have learned to expect the unexpected.

user iconJerome Doraisamy 08 May 2020 Big Law
Chris Wood and Gillian Davidson
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In conversation with Lawyers Weekly, Sparke Helmore partners Chris Wood and Gillian Davidson said that, given the extraordinary events of recent years in Australia, “volatility is becoming normalised in the insurance market”.

“There has been, of course, advice, litigation and assistance with management of claims spinning out of the royal commission and which is expected to continue for the foreseeable future. The regulatory impact is also biting,” the pair said.

“We are seeing some interesting decisions come out of the Australian Financial Complaints Authority; insurers are even being told they ought to pay for claims under policies where there has never been a contract of insurance in existence through simple consumer misunderstandings of process.”


These types of outcomes, Mr Wood and Ms Davidson mused, “could well increase” as COVID-19 claims start to emerge.

“The settlement of disputes through tribunals or government agencies, rather than traditional adversarial or internal processes, will continue to challenge insurers’ ‘social licence to operate’ as well as their appetite for some risks. This is especially true as they deal with their ability to price outcomes not contemplated prior to the royal commission’s report,” they said.

“Insurance premiums will no doubt rise after a 2020 Australian summer punctuated by a litany of natural disasters. Insurers had however priced in a catastrophic summer, making the relevant prudential precautions for just that eventuality, including reinsurance and balance sheet measures.”

The global coronavirus pandemic has, however, “thrown yet another challenge at the insurance industry”, the paid mused.

“While most insurers were able to withstand the losses sustained from the bushfire season, this latest hit could impact insurers’ capital reserves as well as the ability to generate excess returns for shareholders,” they said.

Looming changes: Technology

Dramatic change is stirring the insurance industry, Mr Wood and Ms Davidson noted, “transforming the way organisations operate and engage with their customers”.

Leading the charge of this revolution is technology, the pair posited, including personalisation, big data, analytics, AI, automation, bots and blockchain.

“However, legislation is struggling to keep up with the pace of technological change. Despite legislators’ best intentions, the patchwork of rules and obligations, particularly for multinationals, [is] not easily (or cheaply) implemented in practice. Regulatory change is accelerating, so too are jurisdictional and sectoral inconsistencies, all of which complicate organisations’ compliance efforts,” they said. 

“There was a time when people thought that privacy was a legal issue, and cyber security was an IT problem. There is now recognition that both require a cross-functional response. Lawyers have a unique opportunity to take a seat at the table as part of an organisation-wide response to cyber and privacy. And with legal compliance a growing concern, those lawyers specialising in this space are in high demand.”

Looming changes: Climate risk

Elsewhere, Mr Wood and Ms Davidson continued, there is “intense debate” about the extent to which certain parts of Australia are even insurable, given the climate-driven disasters that are impacting upon our population more so than ever before.

“Insurers are therefore facing a tough task of balancing a ‘social licence to operate’ against the harsh realities of climate-change-induced risk in the property and related cover space. This could very well be because of the royal commission fuelling public expectations around access to and affordability of cover,” the pair submitted.

“What has become abundantly clear from the many extreme events we have experienced recently, is the fundamental misunderstanding in the community around insurance and what it covers or more pointedly, what it doesn’t cover. In the face of the devastation caused by the recent bushfires, the issue of widespread underinsurance became apparent as did the misconception that if someone had insurance, that meant they were covered for every eventuality.”

Lawyers have a role to play, Mr Wood and Ms Davidson argued, in assisting insurers with the skill mix required to address the complexity of climate risks.

“Lawyers can also support their clients in educating the wider community around the role of insurance and the nuances and intricacies of the different types of cover,” they said.

Predictions for the future

Insurance lawyers who provide advice to insurers are fairly immune from economic cycles – something that has been the case for the last three decades, the pair noted, and was also the case more recently during the GFC.

“However, what we are experiencing now is like nothing else we have experienced before, and it is hard to predict too far into the future what a post-pandemic world will look like in the insurance law space,” they posited.

“What we can say is that the last three months [have] not been remarkably different in terms of volume of work and new instructions show no sign of slowing down. What is different however is the type of work we are doing, and we see this trend continuing for some time.”

Many lawyers in the insurance space, Mr Wood and Ms Davidson outlined, are having to pivot their expertise to deal with increased demand for advice and action around “business interruption claims due to the government-enforced restrictions such as event or travel cancellations, entitlements under personal accident covers including workers’ compensation claims from COVID-19 contracted in the workplace, and D&O claims arising from perceived or real underperformance of companies and including investor litigation disputes”.

When we eventually emerge from the coronavirus pandemic, the pair argued, “we will need to support our clients as they navigate an unprecedented new normal and respond to mounting pressure to get the right balance between commercial outcomes, regulatory requirements and societal expectations”.

Emerging opportunities

This all said, there are openings for lawyers in their space to help clients put their best foot forward, the pair outlined.

“With the new General Insurance Code of Practice taking effect on 20 January 2020, many insurers had already moved to adopt the financial hardship provisions of the new code in the wake of the recent bushfires. Those provisions of the code are now being tested in the extreme in responding to the impacts of COVID-19,” they said.

“Measures adopted by insurers include placing moratoriums on instalment arrangements, immediately accepting a claim of financial hardship if informed that the person has lost their employment due to COVID-19 without needing supporting evidence, waiving debts (where appropriate), deferring premium payments for up to six months for small businesses experiencing financial hardship, and employing additional staff to cope with the surge of enquiries and requests. Customers also have the right to ask their insurer to fast-track a claim if they have an urgent financial need.”

Lawyers have an opportunity, Mr Wood and Ms Davidson submitted, to “support insurers [to] comply with the code and put their best foot forward in the community, where emotions are running high and expectations even higher”.

There is an opportunity, they added, for lawyers to step into the skill gap around the increased focus on policy wordings and interpretation.

“Coming out of the crisis, many insurers will be looking to rewrite policies and shore up the exposures they didn’t even know they had prior to this pandemic,” they said.

“It is also well known that prior to COVID-19 may organisations were ramping up their in-house legal capabilities. It might be that the impact of the pandemic will slow these plans.”

Elsewhere, there is a big opportunity in determining how lawyers will work in a post-COVID world, the pair mused.

“Despite all the dreadful outcomes from this crisis, one of the positives for the legal sector has been the opening of minds to flexible working as ‘business as usual’. There had been concerns that productivity would drop and client needs would go unmet, but none of these concerns has eventuated,” they said.

“In fact, the outcomes have been the exact opposite. We have been working hard to ensure an inclusive workplace for all and this crisis has moved the dial in a constructive way.”

Finally, Mr Wood and Ms Davidson concluded, there is an opportunity for the future of the legal sector by way of a greater willingness to talk more openly about mental health.

“With heightened awareness around the impact of stress and anxiety due to COVID-19 but also from the recent extreme bushfire season, employers are more empathetic and responsive to the wellness needs of their workforce.”