Introduction

Australia is a federation of states and territories bound together by the Australian Constitution. It has an overarching federal system of government with its own courts, although each state and territory within the federation has its own system of government and courts.

Like most countries that formed part of the British Empire, Australia’s system of government is modelled on the Westminster system, and an independent judiciary is a central hallmark. Australia’s legal system was also inherited from English common law.

Insurance and reinsurance law are no different, albeit there have been statutory and regulatory modifications, including the enactment of the Insurance Contracts Act 1984 (Cth) (ICA) and the Corporations Act 2001 (Cth). The ICA aims to strike a fair balance between the interests of insureds, insurers and other members of the public, and to ensure that provisions in insurance contracts and the practices of insurers in relation to such contracts operate fairly.

The Australian insurance industry continues to grapple with many evolving challenges and opportunities, including the following.

• The bedding down of another soft market, with increased competition and capacity forcing downward pressure on rates and more favourable terms for insureds.
• The sustained enforcement focus by the corporate regulator (Australian Securities and Investments Commission; ASIC) and the prudential regulator (Australian Prudential Regulation Authority; APRA) in relation to misconduct and governance issues. Particularly, ASIC remains very active in pursuing its enforcement priorities. It has unveiled private credit practices, financial reporting misconduct, insurance complaints and claims handling, and misleading pricing as key enforcement outcomes for 2026. Of note, the blast zone from the Shield and First Guardian debacle continues to expand. Further, as the baby boomer generation transitions into retirement, there is increased scrutiny of the superannuation industry to ensure that superannuants’ benefits and account balances are not adversely impaired.
• Technological developments (specifically, the advent of artificial intelligence) causing disruption and uncertainty in many parts of the Australian economy, which in turn presents new opportunities and challenges for the insurance industry, especially for high-volume/low-value claims.
• The High Court of Australia reviewing the law, which affects or has the potential to affect the casualty line of business, especially in the areas of non-delegable duties of care and personal injury loss damages. Historical abuse claims remain a fertile area for claims activity.

This article provides a high-level snapshot of some key issues and the likely trends and developments facing industry participants and various lines of business.

Directors and Officers

Side C

At the risk of tempting fate, the Side C space in Australia is somewhat of a “good news” story for publicly listed companies and their insurers. Despite findings of contravening conduct in some cases, at the time of writing this article, no Australian shareholder class action has yet resulted in an award of damages for the investors. This has arguably translated into a cultural shift in mindsets, with:

• insureds and their defence counsel being prepared to assume the litigation risk and run these cases to judgment – however, some of these cases are on appeal, including the Worley litigation and the CBA/Zonia & Baron decision;
• insurers being willing to offer Side C cover, albeit with significantly higher retentions absorbing the significant defence costs expenditure incurred in defending securities class actions – experience suggests that the defence costs spend will continue to increase; and
• plaintiff law firms and litigation funders being less willing to prosecute and finance securities class actions given, in particular, the serious difficulties faced by plaintiffs in establishing causation and loss with a cogent evidentiary footing. Of note, the rate of new Side C filings is not accelerating, with only a handful of new Side C claims being filed in 2025, and this trend should continue in 2026. However, these developments are likely to cause plaintiff law firms and litigation funders to pursue representative actions in other fields.

Side A/B

Directors and officers remain under scrutiny from ASIC given the public’s expectation that boards and senior executives will be held to account for misconduct and governance failures of companies.

There is no question that ASIC’s enforcement priorities are translating into more regulatory investigations and, therefore, more inquiry costs being incurred by D&Os. Of note, cybersecurity and resilience is a core focus of ASIC, and it is only a question of when (and not if) ASIC brings a prosecution against individuals for failing to ensure that their organisations have adequate cybersecurity measures in place, in breach of their directors’ duties. Other subject matter risks such as financial reporting, insider trading and greenwashing will remain on ASIC’s radar.

Insolvency risk remains a pressure point for many companies and their boards/executives, with the Australian economy at a crossroads due to stubbornly high inflation and patchy economic growth. ASIC’s statistical analysis indicates that the construction and hospitality sectors have sustained the most insolvencies in recent years, following the end of the government pandemic-related relief. Relatedly, the Australian Taxation Office is using its powers to recover companies’ unpaid debts from directors by issuing director penalty notices.

Professional Indemnity

Throughout 2024, ASIC commenced several investigations into the operation of two investment funds: Shield Master Trust and First Guardian. These investigations exposed the most significant scandal in financial services since the global financial crisis (GFC). The ensuing collapse of these funds triggered losses estimated at AUD1.2 billion and has given rise to prosecutions all along the chain of involvement, including the funds themselves, lead generators, financial advisors and their licensees, ratings agencies, auditors and the superannuation trustees responsible for offering these funds on their investment platforms. Many of these proceedings will be the first time ASIC has taken such action, and most will set precedents for the scope of liability for providers of financial services, with obvious implications for their insurers.

In addition to the Shield and First Guardian investigations, ASIC conducted a review into private credit markets, with a particular focus on funds in the market targeting retail investors and wholesale investors using the “sophisticated investor” exemption. Real estate-focused funds are highlighted for specific scrutiny as ASIC estimates they constitute approximately half of Australia’s private credit market. Conflicts of interest, fee disclosure, valuation and inconsistent terminology have been identified as operational concerns. Around the time of the release of the report, ASIC acted to freeze a number of credit funds for compliance breaches, the majority of which have now been rectified. Further policy response is expected imminently.

As a result of these developments, at least one superannuation trustee has reduced the funds on offer on its platform by almost half. It is expected that other trustees will be conducting similar reviews of their offerings. It remains to be seen whether these actions create liquidity concerns for the affected fund managers.

All of this creates an epicentre of claim activity around any professionals with a connection to the financial services industry. This has coincided with a substantial increase in professional indemnity insurance capacity over the last 12–24 months. It is anticipated that this sector will remain a significant hot spot for professional indemnity claims activity for the foreseeable future.

The construction industry remains a significant area of concern. Insolvency is still prevalent, as the longstanding effects of inflation on fixed price construction contracts continue to cause trouble. Anticipated latent problems arising from these unprofitable projects are a cause for concern. Building defects claims continue to be expensive to defend and tend to implicate most construction professionals involved with the underlying projects.

Otherwise, in Allianz Australia Insurance Ltd v Uniting Church in Australia Property Trust (NSW) [2025] FCAFC 8, the majority of the Court commented (by way of obiter) that exclusions for loss arising from fact and circumstances known by the insured prior to the inception of such policies (“prior circumstances exclusions”) are void by reason of Section 52 of the ICA. Section 52 prohibits contracting out of the operation of the Act. The Court found that the prior circumstance exclusion in this case had the effect of transforming what is a matter for disclosure (governed by Sections 21 and 28 of the Act) into a general exclusion from cover in all instances. Its effect is to substantially exclude the application of the duty of disclosure provisions.

While the potency of prior circumstances exclusions had been significantly diluted by the prevalence of continuous cover extensions over the years, this decision will narrow underwriters’ options to non-disclosure and misrepresentation, and as a result require underwriters to establish prejudice in seeking a remedy. This decision also has implications for other lines of business, including D&O.

Cyber

In the last 12 months, regulatory activity has been notable. In September 2025, the first-ever civil penalty proceedings for breaches of the Privacy Act reached its conclusion, with pathology services provider Australian Clinical Labs (ACL) being ordered to pay AUD5.8 million for a breach in 2022, which exposed the information of more than 220,000 clients. The Australian Information Commissioner had alleged that serious systemic failures at ACL had led to their clients’ information being exposed. It was the first judicial consideration of the obligation to take reasonable steps to protect an individual’s privacy, as required under the Privacy Act. The breaches arose from ACL’s knowledge of a breach and its knowledge of the inadequate response undertaken by its cybersecurity consultant in response. As a result, it was alleged that the sensitive health data of clients remained exposed for more than 12 months.

ASIC has also been active in enforcing cyber risk obligations. ASIC has commenced two enforcement proceedings against financial planning firm Fortnum Private Wealth and FIIG Securities. In each case, ASIC alleges breaches of Section 912A, which outlines general obligations of financial services licensees, including the duty to provide the services efficiently, honestly and fairly; to have adequate resources to perform their services; and to have adequate risk management systems.

Otherwise, the costly implications of data breaches continue without any clear indication as to how victims of data breaches can be best placed to recover compensation while the companies at the centre of the breaches bear the extraordinary costs burden of defending multiple actions. Medibank and Optus face consumer class actions in the Federal Court in addition to representative (or class action) complaints made to the Office of the Australian Information Commissioner (OAIC). In addition, Optus is now also the subject of a civil penalty proceeding brought against it by the Australian Communications and Media Authority for failing to protect the confidentiality of the personally identifiable information of its customers. These proceedings are moving at a stately pace. In the meantime, substantial breaches continue apace, including a breach of Qantas, exposing the details of 6 million members of its loyalty scheme.

Liability

Historical abuse continues to dominate the liability landscape in Australia and to drive claims costs. Defendants and their insurers may also see a rise in care damages in light of a recent decision of the High Court.

Amendments to the law around vicarious liability

The High Court in Bird v DP [2024] HCA 41 emphatically rejected any extension of the scope of the doctrine of vicarious liability (a form of strict liability whereby a defendant is attributed with the liability of another, despite the defendant bring free of fault) beyond employment, in finding that a relationship akin to employment between the Catholic Church and a parish priest, not employed by the Church, was not sufficient to impose a finding of vicarious liability.

That decision puts Australia at odds with the developed common law in both Canada and the United Kingdom. The legislatures in the Australian Capital Territory and Victoria have either passed legislation or have draft legislation before them that will expand the doctrine of vicarious liability to include relationships akin to employment. New South Wales has had in place legislation to this effect since 2018. It can be expected that other states and territories may follow suit.

Care damages

In September 2025, the High Court of Australia was called upon to consider whether a plaintiff was entitled to recover the costs of being cared for in his home, as opposed to being cared for at a facility at a considerably lesser cost.

In finding in the plaintiff’s favour, the High Court noted the following relevant factors:

• before his accident (which left him catastrophically injured), the plaintiff had lived at home;
• continuing to live at home provided the company of his dog and better access to his family, particularly his brother and son;
• if not for the defendant’s negligence, the plaintiff would have continued to reside at home; and
• as the evidence established, there would be real and physical, not merely “slight or speculative”, improvements in the plaintiff’s quality of life and mental health by living at home, rather than at a facility.

These factors led to the High Court finding that the plaintiff’s choice to live at home was reasonable, and he was entitled to recover the cost of receiving care at home.

Whilst the High Court affirmed that each matter would turn on its own facts, it is plainly no longer enough for a court to commence its consideration by casting the plaintiff’s choice to one side because there is a cheaper type of care arrangement available. Defendants and insurers are likely to see resulting inflation in damages claimed and awarded for care in catastrophic injury cases.

The coming year – non-delegable duty

In the coming year, defendants and their insurers will seek clarification of the law surrounding non-delegable duty (a personal/direct duty owed to ensure that reasonable care is taken). The High Court recently heard an appeal in AA v The Trustees of the Roman Catholic Church for the Diocese of Maitland-Newcastle, which may change the current position (identified in Lepore) that a non-delegable duty does not extend to the prevention of intentional criminal conduct by a third party.