The Insurance industry is in a state of flux.

As insurers battle to compete in the Australian market, lawyers have been busy reviewing the industry’s products and legislation affecting it over the past 12 months.

A soft economy and competitive insurance market have seen insurers competing not only on price, but also on coverage, forcing them to be innovative in product design.

“It’s a fragmented market in terms of traditional insurers and underwriting business and there are several disruptors, such as online retailers and unauthorised foreign insurers, causing a real slowdown in premium growth for traditional insurers,” said national managing partner of Sparke Helmore, Jesse Webb.

Many insurers are looking at broadening their wordings and adding additional risks into policies to try to remain competitive.

Specialised cyber risk products are being developed and insurers are considering including some cyber cover in traditional policies as an added benefit.

Significant efforts have been made to refine the language of personal-line policies to plain English, said David Kearney, chief executive partner of Wotton + Kearney, but more work can be done in the commercial space.

“The buyer of an insurance policy in the commercial lines space is generally more sophisticated, there’s often a broker involved who has a very careful understanding of the wordings, but those can still improve,” Kearney said.

Cyber policy wordings will undoubtedly be further refined once a useful claims history exists.

The dawn of big data

The amount of data collected and shared in today’s networked society is increasing at an unprecedented rate.

Traditionally insurers have obtained information from their own claims databases, but more and more they are seeking ways of accessing data in a more sophisticated way to give them a competitive advantage.

Telematics-based insurance could revolutionise the motor insurance industry. “Pay-as-you-drive” and “pay-how-you-drive” technologies present opportunities to develop more accurate pricing and reduce loss by enabling better-targeted claims assessments of individual drivers.

“We’re likely to see some sort of changes in that area in terms of insurers offering discounts to people who turn on telematics,” said Andrew Sharpe, Professional Indemnity Group principal at McCabes Lawyers.

As technology advances and different consumer-based business models such as Uber and Airbnb come to the fore, there will be many challenges for the insurance industry.

“Taxation and contract and consumer laws will all need revision as to how they are keeping pace with technological developments,” Kearney said.

Privacy is another conversation lawyers constantly have with insurer clients. The claims process allows client data to be used and often shared with third parties, whether they are lawyers, brokers, experts or reinsurers.

“It’s very important that all of their privacy systems are constantly reviewed,” Sharpe said.

Cyber losses now cost society about US$700 billion a year, according to KPMG’s General Insurance Industry Review 2014.

Lawyers have been busy collaborating with organisations on cyber products to ensure they have appropriate coverage – and, importantly, support services – in the event of a cyber attack.

“The real benefit of the product is being able to deliver a claims service that will help the insured’s out, not just with cash, but access to the insurers expertise in that area,” said Sharpe.

“That expertise is often outsourced to emergency response technicians and cyber IT specialists, who need to work very closely with the lawyers.”

Shifting dynamics

More sophisticated claims performance data, sourced from claims teams themselves, is changing the supply and demand dynamic for insurance lawyers, said Sharpe.

“On the supply side we’ve seen a real shift from a very centralised procurement-based model for a lot of the major insurers, to a model that… is based on closer collaboration and partnerships with a smaller number of law firms,” said Sharpe.

Advocates for boutique law firms argue that this shift plays into the hands of highly specialised, agile firms with deep understanding of client’s particular industry and business, on top of the technical issues.

“Firms who don’t have a key message about insurance being their main game are likely to fall away,” said Kearney.

Sharpe argues that boutique firms tend to be able to build closer, collaborative relationships with clients through partners that “directly supervise the files in a way that sometimes doesn’t fit with the model of the larger firms”.

However, specialised firms face the challenge of working with other firms when large clients are involved.

Since most significant transactions require multidisciplinary advice, Webb believes cross-disciplinary firms help to ensure ‘holistic’ client servicing.

“It’s not unusual to be providing advice to insurers, effectively in a workplace law context, so I think if you’re a boutique specialising in just a few areas it does put you at a disadvantage,” he said.

Bread and butter work

The tidal wave of insurance claims that flowed out of the 2008 Global Financial Crisis has almost dried up.

As the six-year limitation period for calls of action draws to a close, lawyers are reporting a flurry of claimants pursuing last minute action, but the volume of claims seen from 2008-2013 does not compare to current levels.

Financial System Inquiry (FSI) recommendations may lead to an increase in claims made against financial advisers and accountants in relation to advice given on SMSFs, but it remains to be seen how the government will implement Murray’s advice.

Fewer large-scale natural disasters in the past year have meant less property damage claims landing on lawyer’s desks.

The Productivity Commission’s report into Natural Disaster Funding, submitted to Government in December 2014, recommended an overhaul of Federal funding in this area, with a focus on mitigation. 

The report opposed any overarching government scheme that would interrupt the workings of the insurance market and made recommendations on risk management measures available to asset owners. This too may lead to review work for insurance lawyers over the next 12 months.

There remain a number of public liability class actions still due for trial and the rise of class action suits remains steady.

Slater & Gordon posted a half-year net profit uptick of 46.5 per cent for the six months ending 31 December, compared to the prior corresponding period, and litigation funder IMF Bentham Ltd revealed a huge profit hike (152 per cent) from litigation contracts in the same time-frame.

“There’s little doubt in my mind that plaintiff lawyers are advertising more than they were a few years ago,” said Kearney, adding that the market is moving away from shareholder class action and more towards the liquidator/insolvency space.

As the building industry continues to recover, Webb expects to see more design and construction claims and says the firm is already experiencing a rise in negligence claims against principle certifying authorities.

“Work Cover still pursues its recovery actions quite aggressively and we’re seeing a big upturn in management liability claims,” said Kearney.

McCabes is being kept busy with work across the field from environmental impairment claims, to ICAC inquires to product liability claims, said Sharpe.

Images of recalled products from tuna to frozen raspberries to “fresh” eggs, and now even chocolate Easter eggs, in newspapers provide insight into some of the likely claims in market right now.

As lawyers strive to demonstrate value to increasingly savvy consumers and better-informed insurers in the post GFC market, shifts in computing technology and new business models are poised to stamp a new era for the insurance law industry.