Demand for Directors & Officers(D&O) insurance is being driven by a widening range of risks according to a survey by Global Insurance Law Connect (GILC), a global network of law firms with insurance expertise.
The survey focuses on the impacts of regulation and sanctions, increasing attention on environmental, social and governance (ESG), and the ongoing challenges from a rapidly evolving cyber and artificial intelligence (AI) space.
It reveals that legislation and regulation are a primary concern for 73% of respondents with over half (55%) having expressed concerns around ESG factors and macro-economic conditions. Eleven firms cited cyber risk as having a strong influence on the D&O market.
The survey highlights that in the past five years, 61% of respondents reported an increase in claims, while 55% noted that judges and regulators are more likely to uphold claims against individual directors.
It states that coverage for defence costs, settlements, and damages stemming from allegations of mismanagement or fiduciary breaches is increasingly regarded as crucial, especially as businesses and shareholders become more litigious and regulators more susceptible to influence.
Gillian Davidson, GILC’s chair, said: “Our new D&O report marks a global increase in demand for D&O cover. As the D&O basket of risk widens to include ESG and macro-economic impacts, the demand for D&O cover has also grown globally, with increased interest from smaller firms, who would not previously have considered D&O a core risk for their business.”
“Most noticeable among the growing list of issues is the rise of ESG, which many member firms place among the most pressing concerns for the first time. At the same time, while regulatory concerns were already a major issue in 2021, we are now seeing that for many respondents this regulatory burden has increased to the point where they want to purchase more comprehensive cover.
“These trends typify an increasingly risky environment for executives, with rising litigation and a pattern of personal responsibility for D&Os driving up demand for broad cover across the board.”
In the UK, Beale & Co signposted the potential for significant changes in AI regulation in the wake of the EU AI Act, along with considerable increases in fines and penalties for professional firms and corporations to discourage unethical behaviour, particularly dishonesty.
Addressing the question of pricing the survey states: “Looking ahead to pricing conditions in 2025, respondents in more mature markets expect pricing to level off. This perspective applies to countries such as Australia, the UK, Finland, Germany, and Greece, which is a rapidly maturing market.
“An increase in insolvencies has led to a surge in claims brought by insolvency administrators across many regions, particularly in mature markets, according to our member firms.
“D&O coverage comes into sharp focus during times of economic hardship, as we can expect an increase in insolvencies and transaction failures.”
By proactively adjusting D&O insurance coverage, private companies can better safeguard their directors, officers, and the organisation itself against the complexities introduced by new financial initiatives and regulatory changes.
W Denis are one of the largest independent insurance brokers in the UK and arrange competitive insurance solutions for all types of business and commercial organisations. To discuss this further with a broker at W Denis, please make arrangements with Daniel Moss at [email protected] or on 0044 (0)113 2439812.
