Board members and company executives can be held liable for an increasing number of scenarios as potential exposures continue to broaden in their scope, according to the latest D&O insurance report by Allianz Commercial.

Inadequate responses to economic pressures, geopolitical issues, implementing innovative technologies such as GenAI, or environmental, social, and governance challenges are among the main factors driving the possibility that a company and its directors may be sued in 2024.

Vanessa Maxwell, global head of financial lines at Allianz Commercial, said: “Buyers of D&O insurance from public and private companies have benefited from favourable pricing and broader coverage through 2023, helped by factors such as new market entrants and the stable trend in US securities class action filings.

“However, there is still a lot of risk facing D&Os and their insurers. Inflation continues to bite, influencing future claims through larger settlement values – at a 10-year high – and greater defence costs. The higher cost of refinancing debt is proving a shock. Insolvencies are rising, geopolitical uncertainty is considerable, cyber risk is elevated, and ESG claims are here to stay and proving challenging. D&Os need to be prepared for these headwinds and have a strategy that can adapt when presented with a block to the business. Diversity in the boardroom allows companies to have varied approaches to such problems.”

Inflationary pressures remain and refinancing of existing debt after years of low interest rates is a new test for many, and Allianz analysis suggests business insolvencies are expected to rise by 10% next year. The report notes that D&Os are seeing fresh pressure on cash generation, and decisions around how companies finance capital expenditure and manage their debt profiles are under more scrutiny from stakeholders.

In addition, businesses and their supply chains face considerable geopolitical risks with war in Ukraine, conflict in the Middle East, and ongoing tensions around the world. Political risk in 2023 was at a five-year high, with some 100 countries considered at high or extreme risk of civil unrest, according to analyst Verisk Maplecroft, meaning there is greater pressure and scrutiny on directors to ensure their company is adequately prepared to withstand the impact of business interruption in higher-risk territories, in addition to ensuring the safety of its employees.

The Allianz report also raises GenAI as a significant emerging risk, particularly given its widespread adoption across businesses in a wide range of sectors and its potential impact on business processes. Litigation recently filed against AI companies has already highlighted privacy risks and copyright law violations.

Hannah Tindal, a regional head of commercial D&O at Allianz Commercial, said: “Organisations can mitigate the risks associated with GenAI technologies by setting up best practices and deploying agile methods to keep governance, compliance protocols and legal frameworks current and able to adapt to the technology as it evolves. Close monitoring of AI’s evolution should be a high priority on the boardroom agenda.”

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