The D&O market is expected to see an increase in claims, class actions, and derivative actions in 2023 compared to the year before, according to Gary Lill, head of professional lines at IQUW.
Lill explains that over the past few years the D&O market has seen significant change. “A protracted soft market combined with an increase in claim frequency and severity meant that carriers were not adequately pricing for the exposures faced by clients. Pricing had to go up and the market hardened between 2019 and 2021,” he says. " As a result we saw an influx of new capacity entering the D&O market, as well as existing carriers demonstrating a renewed appetite for business."
While Lill notes that the outlook was positive, this changed at the end of 2021 going into 2022.
Regulatory action or litigation risks due to ESG-related issues are a major concern for boards, driven by increasing reporting and disclosure requirements around such topics, which could trigger claims in case of an inadequate response or non-compliance.

"A hike in inflation, rises in interest rates, and the conflict in Ukraine had a dampening effect on capital markets, resulting in IPOs evaporating and a reduction in de-SPAC transactions. IPOs and de-SPACs were a significant source of new business for D&O carriers between 2019 and 2021. Competition to write new business was fierce during the year and incumbent carriers fought hard to retain their accounts," says Lill.
“The increased sophistication of the plaintiff law firms is a growing future threat. These firms are already good at using technology to target cases, but artificial intelligence may help raise the bar further, which could lead to a reduction in the number of cases that are dismissed. The flip side of this may be an increased number of settlements."
In recent years underwriters in the D&O space have faced, and continue to face, a number of challenges as they use risk assessments to identify exposures. “There is a great deal of uncertainty now: inflation is at the highest level it has been for 40 years, so the 15-year zero interest rate environment is over, there is war in Europe, tensions with China," says Lill.
"These exposures faced by cedents require a significant amount of due diligence by underwriters. The more information that underwriters can receive from clients, the better they are at formulating their risk assessment and decisions about D&O exposures.”
The situation has remained the same at the end of Q1 2023, despite the economic headwinds, explains Lill. “Even the recent banking uncertainty has not resulted in any moderation in behaviour – but we still live in hope that the market does not continue on the same course, or the cycle will simply repeat itself.”
The risk landscape
The 2023 edition of the Allianz Global Corporate & Specialty (AGCS) Directors and Officers (D&O) Insurance Insights report explores key risk trends for directors and officers.
“In our 2023 issue the company’s financial lines experts highlighted five top risk trends that boards of management need to guard against this year: economic and recession risks, cyber security struggles, environmental, social and governance (ESG) disclosures and exposures, US class action securities litigation and antitrust and competition risks,” says Hannah Tindal, head of D&O, regional unit London at Allianz Global Corporate and Specialty.
“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 favorable market for corporate buyers of D&O insurance after double-digit percentage premium increases across key markets in 2021.
As underwriters we need to consider the broader external environment when writing risks. We must optimise our portfolios. We cannot see a repeat of the cycle we saw in 2022.

“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&Os, 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."
According to Lill, the biggest challenge facing underwriters currently are ESG exposures. “Little is known about ESG and its impacts on directors and officers and therefore risk assessment is complex," he says. "Ambitious ESG targets such as net zero or increasing diversity are just two issues facing business leaders. For underwriters it is difficult to understand what the impact of ESG targets and disclosure requirements will have on the D&O space.”
Tindal highlights that ESG regulations could potentially lead to increased litigation for insurers. “Regulatory action or litigation risks due to ESG-related issues are a major concern for boards, driven by increasing reporting and disclosure requirements around such topics, which could trigger claims in case of an inadequate response or non-compliance,” she says.
“In addition, companies and their boards also face the prospect of increasing litigation from environmental or climate groups, activist investors or even their own employees.
According to Tindal insurers are increasingly using ESG-related information when assessing a company's risk profile. "Those companies with strong ESG frameworks and governance will likely find insurers more willing to offer capacity,” she says.
Howden's latest D&O report 'Navigating Global Headwinds' forecasts how the market will develop in 2023 and highlights that company insolvencies will lead a rise in claims against directors and officers, driven by greater director accountability, ESG, litigation funding and claims inflation.
D&O underwriters need to monitor the situation closely, explains Tindal, as it may result in liquidity and profitability squeezes in many sectors and drive rising insolvencies.
“More than ever, D&O underwriters are focused on the financial strength of a company, particularly around liquidity. 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,” she says.
“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. 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.
“Reinsurers have questioned the logic of rate reductions and are requiring rate stability: Lloyd’s similarly have reminded insurers that they are watching the rate adequacy of D&O portfolios."
As D&O insurers navigate a challenging market environment in 2023, Tindal believes "insurers will look to keep rates flat", however she adds "small reductions may be achievable".
For Lill maintaining a disciplined underwriting approach is key if the market is to prevent "extreme market corrections".
"As underwriters we need to consider the broader external environment when writing risks. We must optimise our portfolios. We cannot see a repeat of the cycle we saw in 2022," says Lill.