Geopolitical risks, rising insolvency rates threats to D&O: Allianz

Geopolitical uncertainty and an expected 11% increase in insolvencies this year are just two exposures heightening risks in the directors and officers liability market globally, according to a report issued Thursday by Allianz Commercial.

Additionally, risks from securities class actions spurred by how companies use and profit from artificial intelligence, as well as the proliferation of third-party litigation funding, which can increase both the number of claims filed and settlement costs, are also on the rise, the insurer said.

Global companies can encounter supply chain issues and business interruption from tensions between countries and potentially face heightened legal and regulatory scrutiny, leading to greater D&O risks. In turn, the companies can see more shareholder lawsuits or regulatory penalties triggering coverage, the report said.

The risks associated with AI will continue to grow as companies will need to comply with evolving regulations across the globe and be cognizant that misrepresentations regarding their reported use of and profits from AI can lead to securities and shareholder lawsuits. In 2024 alone, 13 AI-related securities class actions were filed in the U.S., the insurer said.

Allianz Commercial also said an expected increase in business insolvencies in the U.S. could trigger D&O claims by lenders and shareholders seeking to recover losses and alleging breach of fiduciary duty.

Despite these risks, pricing in the global D&O market has continued to soften, and a reversal of the current pricing trend is unlikely.

Premiums can potentially grow if there is a resurgence in mergers and acquisitions and initial public offerings, Allianz Commercial said.