Top D&O risk trends – what’s concerning directors and officers?

New report goes in-depth on top concerns for directors and officers in 2023

Top D&O risk trends – what’s concerning directors and officers?

Professionals Risks

By Ryan Smith

A potential recession and cyber and ESG concerns top the list of key risk trends for directors and officers in 2023, according to a new survey by Allianz Global Corporate & Specialty (AGCS).

US class action securities litigation, particularly around mergers, also remained a key concern despite a drop in new filings, the study found. Cryptocurrency companies and exchanges bucked the downward trend, seeing increasing activity.

“The recent decline in the number of filed securities and class actions in the US, coupled with an influx of new entrants, has created a more favourable market for corporate buyers of D&O insurance after double-digit percentage premium increases across key markets in 2021,” said Vanessa Maxwell, global head of financial lines at AGCS. “However, there is still a lot of risk facing insurers as macroeconomic issues and a potential slowdown loom – conditions which typically lead to an uptick in D&O claims. Inflation is likely to influence future claims through larger settlements. Cyber risk remains at an elevated level and is now seen as a core duty of D&O, with increasing scrutiny on how they respond. Meanwhile, ESG-related liabilities – whether it is inadequate action on climate change or diversity and inclusion issues – can potentially become significant exposures for D&O insurance as well.”

Gloomy outlook

For many countries, the economic outlook for next year is a gloomy one as the risk of recession rises, AGCS said. Falling growth rates, climbing inflation, the energy crisis, volatility in the stock market and ongoing supply chain issues are being watched closely by D&O underwriters, as they could cause liquidity and profitability squeezes in many industries and spur rising insolvencies.

“More than ever, D&O underwriters are focused on the financial strength of a company, particularly around liquidity,” said Katie Fioretti, global head of management liability commercial at AGCS. “With global economic uncertainties progressing, carriers are closely monitoring if the trend of increased Chapter 11 filings (in the US), which impact both public and private companies, will continue in 2023.”

Half of the countries studied by Allianz Research posted double-digit increases in business insolvencies in the first half of 2022. The SME sectors in the UK, France, Spain, the Netherlands, Belgium and Switzerland accounted for two-thirds of that spike, AGCS said. In 2023, insolvencies are expected to rise by 19% globally.

An economic downturn generally means a higher risk of D&O claims, AGCS said. A study by Marsh found that between 2005 and 2007, the firm received an average of 200-300 D&O claims in the UK. With the advent of the Global Financial Crisis, claims notifications skyrocketed by 75% to about 500 in 2008 and peaked at more than 1,600 in 2012. In the US, filings and enforcement actions doubled to more than 2,000 at their peak in 2011, compared to about 1,000 in 2006.

“The likelihood that a public company will be sued in a securities class action increases when financial performance is poor, a company’s share price drops or there is a risk of bankruptcy,” said David Van den Berghe, global head of financial institutions at AGCS. “In such scenarios, investors may argue that the company failed to disclose the challenges it was facing to maintain its earnings guidance, driving a potential increase in D&O claims.”

Cyber and ESG concerns

Cyber concerns such as data security and information protection are top areas to watch for directors, AGCS said. Investors are increasingly considering cyber risk management as a critical component of boards’ oversight responsibilities. Board members are expected to develop and maintain accountabilities for IT security before, during and after cyber incidents, AGCS said. Failure to do so can be seen as a breach of duty.

“Around the world, directors have already been called to account, including in derivative and direct litigation, due to their alleged failures to institute appropriate governance and protection against cybersecurity risk,” said Rishi Baviskar, global cyber experts leader for AGCS’s Risk Consulting team. “Moreover, major breaches experienced by publicly traded firms have damaged investor confidence, causing share price drops, and thereby becoming ‘events’ – which, again, can give rise to costly class action securities litigation. Boards therefore need to initiate and implement a cyber risk management structure that covers the entire organisation.”

Environmental, social and governance issues are another top concern among boards, with regulatory action or litigation due to ESG issues being driven by increased reporting and disclosure requirements. This could trigger claims in cases of inadequate response or non-compliance, AGCS said. Companies and their boards also face the risk of increasing litigation from environmental groups, activist investors or their own employees.

Climate change litigation is on the rise, with more than 1,200 cases filed globally in the last eight years, compared to only about 800 cases between 1986 and 2014. Most of these cases were filed in the US, but filings are increasing at international courts or tribunals. 2021 posted a record-high annual number of recorded cases outside the US.

Another rising risk is “greenwashing” – the misrepresentation of ESG credentials or achievements. This can lead to regulatory action, litigation and shareholder suits, AGCS warned.

“ESG-related information is increasingly becoming a key checkpoint for insurers when it comes to the risk assessment of a company,” Maxwell said. “Those companies with strong ESG frameworks and governance will likely find insurers more willing to offer capacity.”


Another trend scrutinised by the report is the increasing targeting of cryptocurrency companies and exchanges for litigation. There were 10 lawsuits filed against cryptocurrency players in the first half of 2022 alone, compared to 11 for the whole of 2021, 13 in 2020 and only four in 2019.

AGCS said the increased litigation may not be surprising given the volatility of cryptocurrency valuation of late and the November collapse of FTX, the world’s second-largest crypto exchange. Authorities across the globe are investigating for potential violations of securities laws, and oversight has increased, AGCS said.

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