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Heading into 2025, directors and officers (D&O) are facing new challenges and exposures, according to a new report from Allianz Commercial.
From artificial intelligence to geopolitical upheaval, the report highlights several key risks for D&Os to watch:
Global exposure. As businesses have expanded internationally, so have the risks faced by D&Os. Regulatory bodies in many countries are stepping up scrutiny of corporations, increasing D&O vulnerability to investigations, penalties and lawsuits. In Europe, the number of class actions filed in 2023 increased by 10%. In Australia, class actions were up 43% in 2023.
“These trends are driving the need for D&O policies that are responsive to multi-jurisdictional risks and can provide local coverage for legal defense costs, settlements and other liabilities,” said Jacinda Da Rosa, global underwriting head of multinational, financial lines, at Allianz Commercial, in the report.
Privacy-related claims. Privacy issues are a significant emerging exposure for D&O liability, according to the report. “Privacy has been central to several recent corporate and securities lawsuits, including a putative class action lawsuit over the Google+ social media website, in which Google has agreed to pay $350 million to shareholders,” Da Rosa said.
Geopolitical landscape. Global upheaval, including ongoing conflicts in Ukraine and the Middle East as well as rising tensions between the United States and China, can boost risk exposure for many companies. Companies may quickly find themselves facing legal challenges for non-compliance with international sanctions or for failing to adequately manage risks related to politically unstable regions.
D&Os can be subject to shareholder lawsuits or regulatory penalties for misjudging the impact of geopolitical developments on their company’s operations. “D&Os need to update their knowledge around geopolitical and regulatory changes more regularly than before,” Da Rosa said. “A once-a-year review is no longer sufficient in the volatile era businesses are now operating in.”
Artificial intelligence. Companies are now facing allegations of “AI washing” — exaggerating the potential impact of AI — along with challenges involving data security, privacy concerns and employee misuse. Between March 2020 and October 2024, 38 AI-related federal securities class action lawsuits were filed in the United States, with 13 occurring in 2024 alone.
“D&Os must understand how AI is impacting their company and ensure that appropriate structures, processes and audits are in place to address privacy, confidentiality and disclosure issues effectively,” Da Rosa said.
Business insolvency. Global business insolvencies for 2024 are expected to rise by 11%, with an additional 2% increase in 2025 before stabilizing at still-high levels in 2026, according to research by Allianz Trade. “Many companies have faced higher interest expenses, inflationary pressures and macro- and microeconomic headwinds that have impacted their business and resulted in a struggle to service their debt load,” said Dan Holloway, head of global management liability commercial at Allianz Commercial.
D&O risk exposures increase leading up to, during and after bankruptcy proceedings, as lenders and shareholders can bring claims against D&Os.
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