Revealed – the key risk trends for directors and officers in 2024

In a detailed report by Allianz Commercial, it has been highlighted that directors and officers (D&Os) of companies face increasing liability risks in 2024, stemming from a range of factors including economic pressures, geopolitical issues, the adoption of technologies such as GenAI (generative artificial intelligence), and challenges related to environmental, social, and governance (ESG) aspects.

The report points to a 10% expected rise in business insolvencies in 2024. The lingering economic effects of the COVID-19 pandemic, combined with high inflation rates and the challenges of refinancing debt, have placed added strain on companies. Furthermore, global geopolitical risks, such as the conflict in Ukraine and tensions in the Middle East, heighten the scrutiny on directors to ensure their companies are prepared for business interruptions and employee safety in high-risk areas.

The report also sheds light on the impact of GenAI technologies, with a third of organisations reportedly using AI in at least one business function. Allianz Commercial advises that while AI presents competitive advantages, it also brings challenges such as cybersecurity threats, regulatory risks, and misinformation. Recent litigation against AI companies has highlighted privacy and copyright issues, leading to a range of potential claims.

In terms of ESG, regulatory actions and litigation risks are significant concerns for boards. The increasing mandates for ESG reporting expose directors to costs related to investigations, enforcement actions, and potential fines for non-disclosure or misrepresentation.

“Not every stakeholder holds the same view on an issue or the same view as to what actions directors should take. In a world that is becoming increasingly polarized, politically and socially, the very need for directors to evaluate and address the impact of various ESG factors on corporate value creates risk that claims will be made, by activist shareholders or other motivated stakeholders, on either or both sides of any given issue,” Allianz Commercial head of global financial lines claims David Ackerman said.

Lastly, the report examines the impact of the March 2023 US banking crisis, where poor practices and rising interest rates led to bank failures and subsequent securities fraud claims. The crisis underscored the influence of social media in accelerating financial crises, posing an additional risk factor for D&Os to consider.

Vanessa Maxwell, global head of financial lines at Allianz Commercial, notes that while D&O insurance buyers have enjoyed favourable conditions in 2023, numerous risks loom on the horizon.

“There is still a lot of risk facing D&Os and their insurers. Inflation continues to bite, influencing future claims through larger settlement values – at a 10-year high – and greater defence costs,” Maxwell said. “The higher cost of refinancing debt is proving a shock. Insolvencies are rising, geopolitical uncertainty is considerable, cyber risk is elevated, and ESG claims are here to stay and proving challenging.

“D&Os need to be prepared for these headwinds and have a strategy that can adapt when presented with a block to the business. Diversity in the boardroom allows companies to have varied approaches to such problems.”

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