Artificial intelligence: One of the most significant emerging D&O risks
According to the Allianz Risk Barometer 2026, AI jumped from 10th to 2nd place among global business risks (cited by 32% of respondents), trailing only cyber incidents. This reflects not just opportunity but profound liability concerns around automated decision-making, biased algorithms, intellectual property disputes, and accountability gaps when AI outputs cause harm.
AI-washing securities litigation—allegations that companies overstated AI capabilities, integration timelines, revenue potential, or risk mitigations—has become a sustained trend. Data through early 2026 shows dozens of such suits since 2020, with at least 12–14 filed in the first half of 2025 alone across sectors like healthcare (e.g., Tempus AI), ad tech (AppLovin), social platforms (Reddit), and software (Synopsys). A notable February 2026 variant involved claims of an AI-related "stock price pump" tied to a Microsoft collaboration announcement ahead of a private placement, illustrating how plaintiffs blend misrepresentation with market manipulation theories.
These cases often lead to parallel derivative claims for inadequate board oversight of AI governance, disclosure, and third-party risks. Insurers now add specific AI questionnaires to renewal applications, focusing on board committees, reporting, and scenario planning. Some carriers offer targeted AI-related questions or exclusions, while others require audits or stricter risk management. Insureds can strengthen their negotiating position and coverage by documenting board minutes, AI ethics policies, and vendor due diligence.
Cybersecurity: Top business risk
Frequency of cyber-linked D&O claims is rising, particularly in cases involving delayed disclosure or perceived governance lapses. Brokers increasingly recommend negotiating to preserve D&O side-A coverage (protecting individuals when entity coverage is unavailable) and to clarify interrelated claims provisions that could otherwise erode limits across towers. Boards should prioritize regular cyber maturity assessments, tabletop exercises, and integration of cyber risk into enterprise risk management (ERM) reporting.
According to the Allianz Barometer, for the fifth consecutive year D&O implications have become increasingly complex. Significant breaches or ransomware incidents often lead to multiple claims: cyber policies address both first- and third-party losses, while D&O coverage is activated through shareholder litigation alleging failures in oversight, incident response, or prompt assessment of materiality under evolving SEC regulations. Despite changes at the federal level, state regulations and international standards continue to heighten individual liability for directors.
Geopolitical and trade risks add complexity
Tariffs, supply chain disruptions, and international tensions have already sparked securities suits alleging misleading disclosures about financial impacts (e.g., cases involving Dow Inc. and CarMax). Rising insolvencies—global business bankruptcies projected to increase another 5% in 2026 after prior sharp rises—often fuel fiduciary breach claims against directors for alleged mismanagement or inadequate contingency planning.
Allianz highlights geopolitical turmoil pushing "political risks and violence" to its highest-ever ranking (#7 globally). Boards in manufacturing, retail, and technology sectors face heightened scrutiny over horizon scanning, stress-testing, and disclosure of supply chain vulnerabilities. Underwriters are responding with sector-specific questions and, in some cases, heightened retentions or geopolitical exclusions for exposed risks.
ESG and DEI issues persist
Federal pushback has eased some pressures, but state-level mandates (such as California's climate disclosure laws) and private litigation continue. Derivative suits may challenge "anti-ESG" decisions or allege concealment of associated financial risks, while ERISA claims target plan investment decisions involving sustainability or DEI factors. Boards must keep consistent, well-documented governance processes regardless of political shifts to defend against fiduciary duty allegations.
Added long-tail exposures include PFAS ("forever chemicals") and broader environmental litigation, where oversight failures can translate into D&O claims. Shareholder activism around these issues tests disclosure rigor and board diligence.
The insurance market response is measured but noticeable. While capacity stays abundant overall, underwriters apply sharper scrutiny to AI, cyber, and geopolitical exposures. Primary layers may see more data requests and governance evidence requirements, while excess layers face questions on rate adequacy. Policy language around conduct exclusions, related claims, and allocation continues to be a negotiation focal point, especially in blended cyber/D&O programs.
Conclusion and recommended steps to take
Directors and Officers (D&O) liability has evolved to encompass a broad spectrum of technological, cyber, and global risks, extending well beyond conventional financial misstatements. Organizations that proactively integrate these emerging threats into their primary governance frameworks can significantly reduce the likelihood of claims and enhance their ability to obtain helpful insurance terms.
Recommended steps include:
- Create or enhance a risk oversight committee to report quarterly on AI and cyber risks to the board,
- Conduct annual scenario planning exercises for geopolitical disruptions and document contingency measures in board minutes,
- Perform a comprehensive policy audit to ensure seamless interplay between D&O and cyber coverage while preserving Side A protections,
- Invest in targeted board training on AI ethics, cyber maturity, and disclosure best practices, and
- Work with skilled insurance brokers early in the renewal cycle to secure the best terms based on governance improvements.
- These steps turn vulnerabilities into strengths, protecting directors, officers, and the company during uncertainty.
This article originally appeared on FC&S Expert Coverage Interpretation and may not be reprinted.
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