After sustained periods of volatility driven by technological advancements, evolving cyber risks, environmental, social and governance (ESG) developments, and litigation shifts, the directors and officers liability (D&O) insurance market has moderated in recent years. Since 2022, the sector has softened, characterized by abundant capacity, competitive pricing and declining premiums.
This trend continued in 2024, and favorable conditions were largely spurred on by new entrants to the D&O market, increasing competition. According to industry sources, the average cost of $1 million in D&O coverage decreased by 5.2% in the second quarter of 2024 compared to the second quarter of 2023. Further, 68% of primary policies received a price decrease and had an average decline of 9.7% in the second quarter of 2024. It’s worth noting that while mature companies saw rate decreases in 2024, premium reductions for initial public offerings (IPO) companies were often more significant, as insurers have been willing to compete aggressively for IPO business.
Across the board, fierce competition has led to an abundance of capacity, particularly for high-layer and excess insurance, where insurers are eager to deploy capital. Risk tolerance remains relatively high, and insurers are willing to negotiate lower retention levels, especially where companies had accepted higher retention during the hard market.
That said, experts are predicting a slowdown in the market for 2025, and newly public and mature companies may experience gradual premium increases moving forward. There’s general concern that price decreases have gone too far and may not be sustainable in the long term, necessitating market correction. What’s more, several risk trends have the potential to contribute to further shifts in the market for 2025. This concern is driven by rising litigation costs, a surge in derivative action lawsuits—where shareholders challenge the decisions of directors and officers—and the growing complexity of D&O risks. In particular, the increasing use of artificial intelligence (AI) and growing cybersecurity concerns could lead to a rise in D&O litigation and claims. These factors could drive up premiums and lead to tighter underwriting standards. So, while the D&O market currently favors insureds, the market may be losing momentum, and organizations should carefully monitor key trends and adapt their D&O policies accordingly.
Developments and Trends to Watch
AI exposures
AI technology can simulate various cognitive functions typically associated with the human mind, such as observing, learning, reasoning, problem-solving and engaging in creative activities. As it pertains to the boardroom, many corporate leaders have begun leveraging AI systems to create organizational files and reports, analyze company data and, in some cases, make important business decisions. According to a recent study, more than two-thirds (69%) of public companies now utilize AI tools in their due diligence processes.
Even though AI has the potential to help board members boost efficiencies, enhance objectivity and promote improved decision-making capabilities with predictive insights, it also carries unique risks. Namely, if AI systems are implemented incorrectly or rely on inaccurate human inputs, these tools could end up perpetuating biases, producing widespread errors, posing ethical concerns about data privacy and protection, and minimizing overall corporate transparency. In some cases, an organization’s board may not be fully aware of how and where AI is used in the business, particularly regarding its application among third-party vendors. Stakeholders may hold senior leaders accountable for AI-related failures in these instances, prompting costly lawsuits and subsequent D&O losses.
There’s also growing concern of “AI washing,” where an organization misrepresents its use of AI-powered products or services to attract investors. In recent years, some organizations have faced scrutiny over such practices, raising doubts about AI transparency. What’s more, legislation on AI technology and its use in the boardroom is constantly changing. As it stands, several federal regulations and multiple state and local laws address AI in the workplace, with a handful of additional government initiatives currently underway. This legislation primarily requires businesses to establish policies that clearly define AI technology’s roles and responsibilities in their corporate decision-making operations and ensure proper oversight of such tools to reduce the risks of potential biases, errors or privacy issues. A notable piece of legislation—the European Union’s Artificial Intelligence Act—was approved by the European Parliament in March 2024 and is being touted as the world’s first comprehensive AI law. This act categorizes AI into four levels of risk and imposes stringent requirements for each level. Companies violating the act could face significant fines, potentially influencing global AI standards.
Considering these evolving regulatory concerns, board members who neglect to comply with applicable AI legislation could face significant legal penalties and associated D&O losses. Above all, because this is a relatively novel topic in the D&O space, the use of AI in the boardroom could ultimately lead to confusion about who is responsible for related losses and liabilities. This may make it difficult to determine how companies’ D&O coverage will respond to AI-related claims, possibly resulting in compounded risks and insurance gaps. As such, businesses must stay informed on AI trends, adjust policies as necessary and work closely with insurance experts to manage these emerging risks effectively.
Litigation shifts
The D&O market has historically been quite litigious. From 2018-21, publicly traded companies and their senior leaders faced a surge in litigation and related D&O claims, often as a result of alleged breaches of U.S. Securities and Exchange Commission (SEC) requirements or challenges related to IPOs and special purpose acquisition company (SPAC) transactions. This wave of litigation largely subsided throughout 2022 and 2023, but significant concerns may resurface in 2025, especially as they relate to securities class action (SCA) lawsuits. These lawsuits arise when a group of shareholders claims financial losses due to violations of securities laws by the company or its senior leaders, particularly related to inaccurate financial statements and disclosures.
Over the past decade, SCA filings have nearly doubled, peaking at 268 cases in 2019 (not including merger and acquisition-related filings or derivative cases). Although the number of these lawsuits dropped significantly around 2022 and 2023, estimates suggest there were over 200 SCA filings in 2024, which exceeds the number of filings from 2023. By the end of 2024, the number of SCA filings
could reach its highest point since 2020, potentially due to heightened regulatory scrutiny from the SEC. The agency has taken a more proactive and aggressive approach, increasingly scrutinizing disclosures and practices related to emerging risks (e.g., AI). Additionally, the SEC has not been shy about taking action against companies it feels have inadequately handled cybersecurity breaches and implemented new cybersecurity disclosure rules at the end of 2023 to bolster corporate accountability. These rules require companies to report material cyber incidents within four days and disclose their risk management processes, including their boards’ role in oversight.
Cyberattacks remain a prevalent concern for businesses across all sectors, sometimes leading to litigation against senior leaders and related D&O claims. Decisions made by senior leaders are often intensely scrutinized following cyberattacks, potentially resulting in D&O losses from allegations that they lacked adequate measures to protect stakeholders’ personal or financial information, failed to implement controls to detect and prevent cyberattacks, or did not report incidents promptly. Amid increasing ransomware threats and rising digital warfare exposures, cybersecurity has become a worldwide D&O concern; almost two-thirds (62%) of global directors consider cyberattacks, data loss and digital crime among their top D&O risks, according to a recent survey.
ESG issues
ESG activism has also made a noticeable impact on the D&O market. Senior leaders have been held more accountable for upholding their companies’ commitments to environmental and social initiatives by stakeholders, regulators and the public, fueling increased litigation against such leaders and associated D&O claims. Due to the ongoing rise in natural disasters, deforestation, and water and biodiversity degradation, climate change has been the focus of ESG-related litigation, with much of it alleging that senior leaders have not fully disclosed the material risks of climate change or promoted eco-friendly operations. Notably, the SEC issued its final climate risk disclosure in March 2024. This rule requires registrants to provide detailed climate-related disclosures in their annual reports, particularly concerning climate-related risks that are reasonably likely to impact operations, greenhouse gas emissions and board oversight. Additionally, several international leaders and organizations (e.g., the European Union and the International Sustainability Standards Board) proposed similar requirements in 2023.
However, these standards have faced some pushback; there’s been considerable anti-ESG backlash at both state and federal levels. While anti-ESG sentiment can at least partly be attributed to political polarization, one common argument against ESG activism is its perceived impact on shareholder value. Those against ESG activism believe that incorporating ESG practices into investment decisions sacrifices potential financial returns in favor of environmental goals. Put simply, opponents of ESG initiatives view them as government overreach, and this anti-ESG sentiment may be having a broader effect on regulatory action. In 2024, the SEC quietly disbanded its Climate and ESG Task Force, which was started in March 2021 to proactively identify ESG-related misconduct. The disbandment suggests a change in priorities for the SEC or perhaps a response to growing anti-ESG sentiment. Despite the anti-ESG backlash, insureds with robust ESG programs might receive more favorable coverage and lower premiums, especially considering that insurers increasingly consider ESG factors in their underwriting process.
It’s worth noting that while some federal priorities may be shifting, insurers still often view companies with solid ESG practices as lower risk, leading to more advantageous coverage and premium structures.
Macroeconomic factors to watch
The current economic climate is complex and characterized by both uncertainty and resilience. Bankruptcy and insolvency risks are prevalent, with Chapter 11 filings rising nearly 52% from 2023 to 2024, driven by factors like higher interest rates and inflation. The commercial real estate market continues to struggle, and $1.7 trillion of industry debt is expected to mature between 2024 and 2026. Refinancing this debt at higher interest rates could further strain the sector and the D&O insurers that operate within it. Further, geopolitical issues (e.g., the war in Ukraine and tensions in the Middle East) may put increased pressure and scrutiny on directors and officers of global companies, requiring them to demonstrate robust risk preparedness.
Merger and acquisition (M&A) activity has slowed, which might reduce immediate demand for D&O insurance, leading to increased competition and lower premiums. However, insurers may shift their focus to other risks, reassessing their risk appetite and pricing strategies accordingly. Despite these challenges, the U.S. economy has shown signs of resilience. Fears of a recession have largely subsided, and gross domestic product (GDP) growth has remained strong; the Organisation for Economic Co-operation and Development projects U.S. GDP growth of 2.6% in 2024 and 1.6% in 2025. What’s more, the U.S. stock market index has reached record highs, signaling economic optimism, though market volatility may still contribute to investor concerns and litigation. While the D&O market is still considered soft, given its abundant capacity, declining premiums, and broader coverage, evolving risks could prompt a shift to risk-based pricing, rewarding insureds with strong loss control initiatives and favorable claims histories.
Tips for Insurance Buyers
- Examine your D&O program structure and limits alongside your insurance professionals to ensure they are appropriate and take market conditions and trends into account.
- Consult insurance brokers, loss control experts and underwriters to gain a better understanding of your D&O exposures and cost drivers in the market.
- Work with your senior leadership team to carefully review the risks of leveraging AI technology in the boardroom and applicable legislation. Establish clear policies and procedures regarding the proper use of AI tools in corporate decision-making processes.
- Make sure your senior leadership team carefully assesses potential exposures and maintains compliant, honest practices in IPOs and SPAC transactions. Pay close attention to SEC requirements for such transactions.
- Ensure your senior leaders follow safe financial practices (e.g., timely payments, educated investments, accurate documentation and reasonable reimbursement procedures). Be transparent with stakeholders about your organization’s economic state to avoid misrepresentation concerns.
- Be sure your senior leadership team is actively involved in monitoring your organization’s unique cyber risks, implementing proper cybersecurity practices to help prevent potential attacks (especially in the realm of remote work arrangements), ensuring compliance with all applicable data security standards and establishing an effective cyber incident response plan to minimize any damages in the event of a cyberattack.
- Prioritize establishing eco-friendly initiatives among your senior leadership team. However, ensure that these initiatives remain realistic to avoid greenwashing concerns. Greenwashing occurs when organizations falsely market their products or services as environmentally friendly without actually committing to conducting sustainable practices. Furthermore, be sure your senior leadership team conducts their due diligence and provides proper reporting as it relates to climate change concerns.
Read the Complete 2025 Market Outlook Series
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