During the past five years, the D&O insurance segment has undergone significant changes due to technological advancements, evolving cyber risks, environmental, social and governance (ESG) developments, and litigation shifts. Between 2018 and 2021, 75% to 96% of publicly traded companies experienced consistent rate increases. However, by Q1 2022 only about 34% of policyholders encountered rising premiums, indicating a moderation in the market. This trend continued in 2023, with rates experiencing a substantial softening. Industry research shows that during the first half of the year, 91% of publicly traded companies saw a decrease in premiums, with average rate reductions ranging from 10% to 25%.

Positive market shifts can be attributed to the entry of new market players, increased underwriting appetites and a growing capacity for higher excess layers of coverage. These factors have benefited policyholders with a more competitive environment. While the D&O segment is showing signs of stabilization for private and nonprofit organizations, insurers continue to view them as elevated risks, leading to continued rate hikes, albeit at a reduced pace.

Industry experts foresee continued favorable market conditions in 2024, anticipating decelerated premiums and expanded capacity. However, despite overall improvements, more than 75% of D&O underwriters express concerns about increasing segment risks. Therefore, organizations operating in challenging industries or lacking robust risk management measures may still face potential rate leaps and coverage challenges.

Trends Shaping the D&O Market

Liability Concerns from Artificial Intelligence (AI) Use

An increasing number of public companies (69%) are incorporating AI tools in their due diligence procedures. As AI utilization becomes an integral aspect of corporate decision-making, it’s essential to exercise caution. Although AI tools can improve efficiency and decision-making processes, incorrect implementation or reliance on unreliable inputs can introduce biases, ethical concerns and reduced transparency.

Given the dynamics of changing regulations, executives must adhere to relevant AI legislation to avoid substantial legal penalties and associated D&O losses. It’s important to note that the use of AI in boardrooms is still emerging, introducing uncertainty regarding liability and associated losses. Consequently, determining how D&O coverage will manage AI-related claims might prove challenging, potentially resulting in increased risks and potential gaps in insurance coverage.

Rising ESG Accountability

The growing prevalence of ESG activism has heightened accountability for senior executives, especially in the realm of environmental sustainability. Notably, there’s been a significant rise in climate change lawsuits as stakeholders criticize companies for inadequate commitment to ESG endeavors. According to the Grantham Research Institute, over 2,000 lawsuits and consequent liabilities against businesses have already emerged from global climate change litigation. In response, the SEC proposed amendments to its climate change disclosure regulations for publicly traded companies in 2022. These revisions entail greater transparency requirements, compelling companies to provide more comprehensive information on their climate-related risks, mitigation strategies and greenhouse gas emissions.

In 2023, several global leaders and numerous companies, along with their senior executives, encountered challenges in effectively implementing these regulations. According to a report from KPMG, an international professional services network, only 25% of businesses were adequately prepared to subject their ESG data to external reviews.

Escalating D&O Cybersecurity Threats

Senior executives are under intense scrutiny due to the growing frequency of cyberattacks. A recent survey found that 62% of global directors regard cyberattacks, data loss and digital crime as primary risks for directors and officers. Failing to adequately safeguard stakeholder information, implement effective cybersecurity measures and promptly report incidents can result in significant D&O losses. The introduction of revised cybersecurity disclosure regulations by the SEC heightens the potential for litigation and D&O losses for companies that fail to comply with these requirements.

Strategic Tips for Buyers

• Expert Consultation: Partner with insurance brokers, loss control experts and underwriters to better understand your D&O exposures and market cost drivers.
• AI Assessment: Collaborate with your senior leadership team to evaluate the risks associated with leveraging AI technology in the boardroom. Establish clear policies and procedures for integrating AI tools into corporate decision-making processes.
• ESG Initiatives: Prioritize eco-friendly initiatives among your senior leadership team. Ensure that these programs remain realistic to avoid greenwashing concerns. Verify your senior leadership team conducts their due diligence and provides proper climate change reports.
• Cyber Preparedness: Verify the senior leadership team actively monitors your organization’s unique cyber risks and implements proper cybersecurity practices to prevent potential attacks, ensures compliance with data security standards and establishes a cyber incident response plan to lessen damages.

We’re Here to Help Protect Your Senior Leadership

Industry experts are forecasting D&O insurance premiums will see an average increase of up to 5%. Rest assured, you’re not alone in facing these challenges. Our brokers are uniquely positioned to offer you invaluable risk management strategies, encompassing both forecasted industry trends and insights to make your organization attractive to underwriters. Connect with a member of our team to learn more about the comprehensive guidance and support we can offer.